pilot projet admin burdens by EuropeanUnion

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									PILOT PROJECT ON ADMINISTRATIVE BURDENS



            Prepared by WiFo and CEPS
     for the European Commission, DG Enterprise
        under Contract Nr. B2/ENTR/05/091-FC


                    FINAL REPORT



                          TEAM:


              Michael Boeheim (Coordinator)
                      Andrea Renda
                       Hannes Leo
                       Tom Weijnen
                     Fabian Unterlass
                      Paola Coletti
                  Margit Schratzenstaller




             Vienna/Brussels, 14 December 2006
                                                 II




                                TABLE OF CONTENTS

1     Introduction                                                         1
1.1   Methodological note                                                   3
1.2   Background Description of the prototype Standard Cost Model (SCM)     3
1.3   How to estimate the administrative burden using the SCM               7
1.4   Phases of a standard cost analysis according to the SCM Network      12
1.5   Countries that have adopted the SCM                                  14
1.6   The EU better regulation and simplification agenda                   17
1.7   The proposed EU SCM                                                  20
      1.7.1   A comparison between the prototype SCM and the EU SCM        25
      1.7.2   Pending issues after the pilot phase                         27
2     Country case studies                                                29
2.1   The Netherlands                                                      29
      2.1.1   The Standard Cost Model                                      30
      2.1.2   Baseline measurement                                         31
      2.1.3   Methodology                                                  32
      2.1.4   Targets                                                      44
      2.1.5   Results                                                      45
      2.1.6   Most burdensome EU legislation                               46
      2.1.7   Conclusion                                                   49
2.2   Denmark                                                              51
      2.2.1   Methodology                                                  51
      2.2.2   Content                                                      61
      2.2.3   Procedure                                                    62
      2.2.4   Targets                                                      64
      2.2.5   Results                                                      66
      2.2.6   Summary                                                      74
2.3   The United Kingdom                                                   77
      2.3.1   Methodology                                                  79
      2.3.2   Procedural/organisational issues                             86
      2.3.3   Results                                                      92
      2.3.4   Most burdensome EU Regulations                               93
      2.3.5   Summary and comments                                         94
2.4   The Czech Republic                                                   96
      2.4.1   Methodology                                                  96
      2.4.2   Content                                                      96
      2.4.3   Procedure                                                    97
      2.4.4   Targets                                                     101
      2.4.5   Results                                                     102
                                               III



      2.4.6    Most burdensome Directives                                              102
      2.4.7    Summary – Lessons                                                       103
3     Cross-country comparison and main findings                                       105
3.1   Cross-country comparison                                                         105
3.2   Priority areas for simplification                                                113
3.3   Most burdensome EU directives                                                    118

4     Suggestions for the Commission’s “Action Programme”                              120
4.1   Methodological issues                                                            122
      4.1.1    Classification of origin                                                123
      4.1.2    Database interoperability                                               128
      4.1.3    Sampling, data collection, extrapolation                                130
      4.1.4    Level of detail                                                         132
4.2   Organisational/Institutional issues                                              132
      4.2.1    Scope and purpose                                                       132
      4.2.2    ‘Who should do what’ in the Action Programme                            133
      4.2.3    Institutional communication issues                                      135
      4.2.4    Involving all EU institutions                                           136
4.3   Operational suggestions                                                          137
      4.3.1    Priority areas                                                          137
      4.3.2    Target-setting                                                          139
      4.3.3    Periodic reviews v. ‘live’ baseline and the role of Impact Assessment   141
4.4   Summary of main findings                                                         142
                                                              IV




                                               LIST OF TABLES
Table 1 – Examples of IOs .....................................................................................................9
Table 2 – Examples of administrative activities.................................................................10
Table 3 – The phases of a prototype standard cost analysis.............................................12
Table 4 – Overview of measurements for businesses per country...................................17
Table 5 – The phases in the Commission operational manual for ex ante
           assessment of administrative costs....................................................................22
Table 6 – Prototype SCM v. Commission operational manual.........................................24
Table 7 – EU standard reporting sheet...............................................................................25
Table 8 – Comparison between the Dutch SCM and the EU SCM................................... 26
Table 9 – Total Administrative Burden of the baseline measurement at 01-01-
           2003, by ministry according to the ABC classification*) (€ million) ...............33
Table 10 - Example – selection of sample firms.................................................................39
Table 11 – Who does what in the 15 steps of the SCM, The Netherlands........................40
Table 12 – Realised net reduction and prognoses by Ministry (€ million)*) ...................46
Table 13 – Overview of results by department, domain and origin (€ million)*) ...........48
Table 14 – Who does what in the 15 steps of the SCM, Denmark ....................................64
Table 15 - Simplification potential in the three measured areas:......................................65
Table 16 – Central figures from the zero point and baseline measurements ..................66
Table 17 – Administrative burdens by areas and ABC-classification ..............................67
Table 18 – Top-5 most ‘EU-burdensome’ ministries/areas in Denmark .........................68
Table 19 – Results of the Danish measurement by ministry.............................................70
Table 20 – Most burdensome EU Directives in Denmark.................................................71
Table 21 - Multipliers for the entire economy and individual industries.......................73
Table 22 – number of regulations by department .............................................................82
Table 23 – UK reporting format on the origin of regulation (A and B)............................85
Table 24 – Who does what in the 15 steps of the SCM - UK.............................................87
Table 25 – Measurement methods ......................................................................................90
Table 33 – Who Does What in the 15 Steps of the SCM – Czech Republic .................... 100
Table 34 – Most burdensome EU directives in the Czech Republic............................... 103
Table 28 – Who does what – cross-country comparison................................................. 107
                                                                  V



Table 29 - Comparison of SCM variants .......................................................................... 109
Table 30 - Irritating areas for SMEs and their predominant origin according to
           IPAL................................................................................................................... 114
Table 31 – List of priority areas......................................................................................... 116
Table 32 – most burdensome EU directives, cross-country............................................ 119
Table 33 – Options available for the classification of origin ........................................... 127
Table 34 – Example of country distribution (CPB, 2006) ................................................ 131
Table 35 – Example: ‘who should do what’ in the Action Programme ........................ 134
Table 36 – Estimated total administrative burden for EU countries, % of GDP,
          2003 .................................................................................................................... 140




                                                 LIST OF FIGURES
Figure 1 – Administrative Burden versus Administrative Cost.........................................4
Figure 2 – Information obligation, data requirements and activities.................................5
Figure 3 – Decision tree for classification of origin .............................................................7
Figure 4 – Identifying the normally efficient business......................................................11
Figure 5 – Example of reporting sheet ...............................................................................14
Figure 6 – Decision tree for classifying data requirements - process...............................54
Figure 7 - Decision tree for classifying data requirements - contents..............................55
Figure 8 – The Danish Database model..............................................................................60
Figure 9 – Description of the Copenhagen Economics Trade Model (CETM) ................72
Figure 10 – Timetable of the upcoming Action Programme .......................................... 120
Figure 11 - Building the 'EU' Category............................................................................. 125
  PILOT PROJECT ON ADMINISTRATIVE BURDENS
                           EXECUTIVE SUMMARY

Over the past few years, many European member states have launched policy
initiatives aimed at measuring and reducing unnecessary administrative burdens
caused by national and international legislation. The European Commission will be
soon launching an Action Programme to measure and reduce administrative burdens
generated by EU legislation in the EU25. A pivotal role in light of the upcoming Action
Programme is played by the development of an EU common methodology to assess
administrative burdens (the ‘EU SCM’), which should enable cross-country
comparison and the identification of pieces of EU legislation which create unnecessary
burdens on private and semi-private businesses, citizens, and public administrations.
The reference model adopted by the Commission for the development of the EU
common methodology is the Standard Cost Model (SCM) developed in the
Netherlands. This model seeks to break down existing legislation into information
obligations (IOs), which are further subdivided into data requirements (DRs) and
administrative activities. Once the breakdown of administrative activities is achieved,
each activity is given a time, cost and frequency variable to estimate the corresponding
costs.
A number of Member States adopted the Dutch model or developed their own national
variant of the SCM. SCM adopters are however situated in different stages of applying
the model. The Netherlands, Denmark, the United Kingdom and the Czech Republic
already completed a baseline measurement, whereas others – including Austria,
Belgium, France, Germany, Estonia, Hungary, Ireland, Italy, Norway, Poland and
Sweden – are still carrying out the measurement or have just launched pilot projects on
individual areas or pieces of legislation.
The Netherlands as vanguard of the SCM prepared an ex-post inventory of total
administrative burdens for the businesses in 2003. Under the lead of the Ministry of
Finance (the Interministerial Project Unit for Administrative Burden (IPAL) is the
central unit coordinating the implementation of the SCM, and is based in the Ministry
of Finance) the measurement led to an estimated total for all administrative burdens of
€ 16.4 billion, as high as 3.6% of the Dutch GDP. Based on these results, the Dutch
Cabinet outlined the target of reducing administrative burdens by 25% before the end
of 2007.
The Danish reduction target is similar to the Dutch one. Also in Denmark the reduction
should be 25% of the already estimated administrative burdens. The difference is the
timeframe for achieving the target, as the Danish government planned to achieve the
target by 2010. The full scale measurement started in August 2004 and was completed
in March 2006. The lead in the Danish measurement process was taken by the Division
                                           ii



for Better Business Regulation in the Danish Commerce and Companies Agency (an
agency under the Ministry of Economic and Business Affairs). All 15 ministries with
business-relevant legislative and regulatory competences were involved in the
measurement. The Danish approach also tried to investigate the trend of
administrative burdens since November 2001 when the current Government was
assigned. The total administrative burden was estimated as 2.1% of Danish GDP
corresponding to 32.2 billion Danish Kroner.
In the United Kingdom, the Better Regulation Executive (BRE) located within the
Cabinet Office was established in May 2005 to coordinate, inter alia, the strategy for
reducing administrative burdens. The Government had agreed to adopt the SCM two
months before. The measurement started in September 2005 and the results are
expected in 2006. Sixteen departments were involved in this measurement. In the
meanwhile two separate exercises were carried out by the tax authority (HMRC) and
the Financial Services Authority (FSA). Their results were published in March and
April 2006.
In the Czech Republic, the Better Regulation Unit, part of the Department of
Regulatory Reform and Central State Administration Reform (located within the Office
of the Government), was assigned to coordinate all activities targeting the reduction of
administrative burden. An overall measurement was completed between March and
December 2005. All business-related regulations in 13 ministries and 11 central
administrative authorities were included.
Of the other member states:
§   Sweden is already at the stage of carrying out the measurement process. Since July
    2004 the Swedish Agency for Economic and Regional Growth (Nutek) is
    responsible for applying the SCM to measure administrative burden. First areas
    were measured in May 2004. In 2007 the overall measurement is expected to be
    completed. After the completion of each measurement the Swedish government
    sets a reduction target.
§   Estonia carried out two SCM pilot projects in 2005 to test the SCM. Up to now there
    is neither a reduction target set nor a SCM-related simplification project based on
    the pilot studies started.
§   Norway plans to measure administrative costs of businesses under the lead of the
    Ministry of Trade and Industry up to October 2007 to form the basis for
    considerable reduction targets by autumn 2009.
§   Italy started a pilot measurement whereas the SCM is being applied to 25 cases of
    permits and other administrative obligations for the exercise of business activities.
    Results are expected by September 2006.
                                                        iii



§      After three pilot projects, Poland has just entered the initial phase of sector AB
       measurement, which will cover 150 information obligations identified in 20-25 legal
       acts.1 The results of the initial measurement will be presented at the end of 2006.
§      Ireland is interested in using the SCM and will therefore start pilot measurements
       in the coming months.
§      The Austrian government decided on 27 April 2006 to reduce the administrative
       burden for businesses by 25% until 2010. Therefore the SCM should be applied to
       estimate the administrative burden. Measurement results will be available in June
       2007.
§      Germany has recently decided to carry out a full scale measurement exercise in
       2007.
§      Finally, in France the last report of the Conseil d’État on the “Juridical security and
       complexity of the law” has identified the inflation of norms as a major cause of
       inefficiency and bad quality regulation. The Minister in charge of the reform of the
       State has launched a hundred modernisation audits, in order to alleviate the
       administrative burden for businesses and individuals. Moreover, at the end of 2005,
       some tests were carried out with external consultants on 110 authorisations
       concerning businesses, and over 30 concerning final users, so that a measure of
       administrative burden may be established. The tests shall be applied to all types of
       obligations, according to the SCM method.2
As a preliminary statement, it must be recalled that the scope and methodology of the
SCM tools adopted by each of these member states differ noticeably. The SCM can be
used both ex ante and ex post. When used ex ante, the SCM can be applied within
regulatory impact assessment procedures, which helps preventing new pieces of
legislation from creating unnecessary administrative burdens on businesses, citizens or
administrations. The methodology applied in ex ante measurements is in some
circumstances different from that used for ex post measurements. In addition, the
integration of the SCM with RIA significantly depends on how well developed RIA is
at national level.
Countries that are measuring administrative burdens with SCM tools have targeted
different areas, as shown in Table A below.3 The countries that have completed or plan
to undertake a full baseline measurement are Austria, the Czech Republic, Denmark,
Germany, the Netherlands, Norway and the UK. Other countries, such as Belgium and
Poland, have planned to measure a significant portion of sectors.




1The project identified four burdensome areas: labour law, environment protection regulations, tourist services and
public aid.
2   Conference on simplification, Paris, 9 June 2006.
3   Taken from SCM Annexes UK
                                           iv



        Table A – Overview of measurements for businesses per country




Source: International SCM Network (2006)



In addition, the European Commission has developed a proposed EU common
methodology (“EU Net Cost Model”) since March 2005, has tested it in a pilot phase
and published a revised version of the model in October 2005, now called ‘EU SCM’.
An operational manual for applying the model was included in the Impact Assessment
guidelines on 15 March 2006. The model has been applied in a number of Impact
Assessments that have already been published or will be published by the end of this
year.
In this Report, we analyse the experience of the four member states that have fully
implemented the SCM tool and completed a baseline measurement (The Netherlands,
Denmark, the UK and the Czech Republic), with the aim of identifying the main
features of these national models and comment on the compatibility between these
models and the currently proposed EU methodology. The main finding of our analysis
is that, although the models used in the four member states have a lot in common,
many methodological and organisational differences exist. These differences, however,
are not always relevant for the upcoming Action Programme: some methodological
adjustments will in any case be needed, in order to allow the possibility of undertaking
cross-country comparisons and benchmarking, as well as the effective communication
between national and EU databases and their usefulness in highlighting potential areas
for simplification.
The most relevant differences that emerged from our case studies are the following:
•   Scope of measurement: some countries, such as the Czech Republic and Denmark,
    only calculate administrative costs faced by private enterprises, whereas the UK
    calculate costs for private and semi-private businesses, and the Netherlands also
                                                          v



       include citizens. The EU model is the most ambitious, as it includes citizens and
       also public administrations.
•      Targets: most countries have selected a 25% ‘political’ target reduction of
       administrative costs. An exception is the Czech Republic, where the target selected
       is 20%; in addition, some countries – such as the Netherlands and, to a lesser extent,
       the UK – decided to set (at a later stage) specific targets for ministries/departments,
       whereas others – like Denmark and the Czech Republic – have not set different
       targets for specific ministries.
•      One-off costs: most countries – with the exception of the Czech Republic – do not
       include one-off costs in the baseline measurement. However, in the UK model one-
       off costs are included in the overhead, and the UK and Denmark include one-off
       costs in the ex-ante measurement carried out within RIAs. The proposed EU model
       specifies that such costs, when non-marginal, ‘may be taken into account’. This was
       also the approach chosen for the Dutch baseline measurement.4 In the Netherlands
       one-off costs are qualitatively described when ministries report the results of their
       measurement.
•      Obligations set by optional schemes: these information obligations are commonly
       referred to as ‘voluntary obligations’. In Denmark and the UK, these IOs are taken
       into account, if they are expected to arise from a quasi-regulation. In the UK, the
       baseline includes also codes of conduct and guidance documents with government
       backing, which cannot be considered as having binding force.
•      Distinction between ‘pure’ obligation and good practice written in the law: ‘Pure’
       obligation refers to what one would stop doing if the legal obligation was
       removed.5 The EU model assesses all legal obligations even when the latter
       correspond to good practices. In other models, it is possible to assess only pure
       obligations.
•      Overhead: in the UK, a 30% rate was chosen, compared to the 25% rate used in the
       Netherlands and in Denmark. In the Czech Republic, a specific overhead
       percentage has been set by particular ministries, and no standard overhead
       percentage for all ministries and administrative authorities is foreseen.
•      Demarcation: most countries use a default 50:50 split whenever an IO/DR is found
       to fall under the competency of more than one department. In the UK, the need for
       demarcation was foreseen, but no 50:50 split rule was chosen. The most appropriate
       split is therefore set through negotiation between departments, and normally the
       department that has taken the regulatory initiative keeps ownership of the
       corresponding obligations.




4   See Manual, December 2003, p.15.
5This definition is comparable to the definition of "administrative burdens" (pure obligation) and its distinction from
administrative costs (good practice) used in Figure 1
                                            vi



•   Segmentation: in practice, segmentation criteria differed noticeably. In the UK,
    industry sector and type of activity proved more useful than firm size (except for
    the tax measurement undertaken separately). In the Netherlands, Denmark and the
    Czech Republic firm size was a guiding principle.
•   Accuracy and costs: the Danish and UK models seem likely to reach a higher level
    of accuracy in the estimates, also due to the intensive involvement of consultants,
    the more detailed breakdown of IOs into data requirements (Denmark) and the
    further breakdown of the classification of origin (Denmark and UK). The UK
    database seems the most suited to retrieve original pieces of EU legislation,
    although with some gaps. The greater accuracy, however, is reflected also in the
    cost of the measurement, especially as regards the UK.
•   Organisational patterns: the four national models exhibit some differences as
    regards the role played by ministries, central coordinating units and consultants.
    The Dutch and Czech models rely on ministries much more than the Danish and
    UK models. In the UK, ministries/departments are involved only in the initial step
    of the measurement, which is then carried out mostly by the consultant with the
    supervision of the BRE. In the Netherlands, IPAL is involved mostly in the review
    of activities performed by ministries and consultants, and in the final stages of the
    measurement. In the Netherlands, consultants are not involved in the final
    reporting and transfer to database, whereas in Denmark and the UK the setting up
    of a database was achieved with a strong involvement of consultants.
The analysis of the four case studies allowed us to draw two main conclusions. On the
one hand, the adoption of a common theoretical framework – provided by the SCM
tool – certainly represents a significant advantage for the implementation of a multi-
level measurement model coordinated by the European Commission. Had existing
models obeyed to differing theoretical assumptions and methodologies, such an
exercise would certainly have proven impossible from the outset. At the same time, it
must also be observed that the differences in the four models analysed makes cross-
country comparison a rather challenging exercise.
In this Report we identify the most burdensome EU pieces of legislation according to
the measurements carried out in the four surveyed member states, and develop a list of
the ‘top-15’ (most burdensome) EU directives. In addition, we report the findings of the
four central units in charge of coordinating the implementation of the SCM tool as
regards possible priority areas for simplification. Finally, we offer a set of suggestions
for the upcoming Commission Action Programme on administrative burdens, with
specific focus on pending methodological and organisational issues.
Table B below provides examples of burdensome pieces of EU legislation in each of the
selected priority areas and illustrates the available information as regards the relative
percentage of total administrative costs accounted for by each area in Category A and
B in the four member states analysed.
              vii




Table B – List of priority areas
viii
                                                            ix



Table C lists the most burdensome EU directives, based on data from the central
coordinating units in the four member states analysed.6


                   Table C – most burdensome EU directives, cross-country




6 Figures reported as ‘not available’ in Table C above do not necessarily correspond to pieces of legislation that were not
measured by member states. Lack of availability of an exact figure for a given piece of legislation is often due to time
constraints, or to the impossibility of tracing back the original piece of legislation in the national database.
                                            – x –



After this Pilot Project, it will be possible to identify a list of low-hanging fruits based on
informal proposals by the central units in charge of better regulation in the four member
states analysed. These proposals are being prepared by the central coordinating units in the
four member states analysed and will be filed as informal and unofficial contributions by
these agencies, not to be interpreted as national or governmental views.
This Final Report also provides suggestions for the organisational and methodological
arrangements that should be adopted in order to effectively set up a pan-European
measurement of administrative burdens. In this respect, the identified areas for optimisation
of the current EU SCM are the following:

1. Database interoperability: to ensure the interoperability of national databases on
   administrative burden and access for the Commission.
2. Country distribution: identification of weighting systems for assessing EU-wide costs on
   the basis of a limited number of national data (e.g. country distribution).
3. Accuracy: identification of the average margin of error of administrative cost
   assessments.
4. Standard ratios: identification of standard ratios for overheads, training costs and
   learning curves and for costs corresponding to normal business operation, among other
   things.
5. Thresholds: identification of specific threshold(s) below which quantification is not
   necessary (minimum thresholds for the application of the model).
6. Extension to citizens: possible adjustments of the model when assessing administrative
   costs put on citizens.
7. Guidance on borderline cases: possible problems in distinguishing IOs from other
   regulatory costs and how to overcome them.
8. Standardisation of IOs and target groups: looking at possible shortcomings of the
   typologies of IOs and required actions used in the EU operational manual; examining the
   need for a typology of target groups.
9. Exchange of data: Organising optimal exchange of data between the Member States
   (including their regional authorities) and the Commission.
10. Target-setting: the issue of target-setting still needs to be addressed and agreed upon.
    Whether an overall target can be set at pan-European level for the reduction of
    administrative burdens imposed by legislation within a given timeframe is one of the
    issues that will have to be explored in the near future.
This Report offers suggestions on these and other pending issues. In particular, we reach the
following main conclusions.
•   Based on national experiences and the similarities between the EU and national models,
    launching a pan-European Action Programme is feasible, although challenging.
•   The issue of database interoperability and institutional communication between the EU
    and member states would be more easily solved if the Commission identifies all the
    IOs/DRs generated by the acquis, plus those that represent the ‘minimum efficient
    implementation’ of pieces of EU legislation. This activity – which leads to defining the
                                             – xi –



    ‘EU’ category (or category ’zero’) should be carried out by consultants in the first months
    of the Action Programme. Once the Commission has published a list of IOs/DRs,
    member states that already have a database should update it accordingly. Those that do
    not have a database yet should design it in order to allow for interoperability – i.e. by
    ensuring that all the IOs defined by the Commission are flagged and measured.
•   With this arrangement, member states will be called to validate Category ‘EU’ and then
    define their category B in a residual way, thus also identifying instances of gold-plating.
•   Member states are more suited to measure IOs/DRs provided by the Commission as
    ‘EU’. As most member states will have to carry out their own measurement anyway, such
    an arrangement increases economies of scope and avoids redundancies such as, eg,
    double interviews or duplication of focus groups, etc. Depending on the number of
    countries that participate to the measurement, the Commission will then have to use a
    country distribution to extrapolate the results to the EU level. Such exercise has already
    been undertaken in recent Commission RIAs that integrate the SCM tool.
•   If the Commission defines category ‘EU’, there would be no need to invest efforts and
    resources to build a ‘Table of Concordance’ between EU and national legislation during
    the preparatory phase of the measurement. At the end of the measurement, if member
    states have flagged the origin of – and the national references for – all IOs defined by the
    Commission as ‘EU’, the Table of Concordance would be automatically generated.
•   Assumptions made during the Action Programme and in extrapolating data to the EU
    level can then be standardised for use in ex ante impact assessment, though the SCM
    methodology for ex ante impact assessment (like occurs in the UK) will inevitably differ
    from that applied in the ex post measurement exercise. In ex ante measurement, as a
    matter of fact, one-off costs will always be taken into account, and ‘business as usual’
    costs will never be considered.
•   As regards accuracy and the level of detail, we suggest – based on national experiences
    analysed – that the Commission identifies ‘IOs’ as the basic unit of its measurement,
    though subdividing IOs into DRs only in exceptional circumstance. Further subdivisions
    would add little accuracy, but a lot of complexity. Furthermore, the typical ‘Pareto
    distribution’ of administrative burdens suggests that in most cases, for IOs that are not
    particularly costly direct assessment of administrative cost is more efficient and effective
    than interviews or focus groups.
•   In operational terms, we suggest that the Commission awards priority to the 10 most
    burdensome areas in Categories A and B, after submitting them to consultation in the
    October 2006-February 2007 timeframe. These areas always represent at least 70% of
    burdens generated by EU legislation. The measurement of remaining areas and of
    burdens faced by citizens and public administrations should be undertaken at a later
    stage or, in any case, separately.
•   As the EU impact assessment system is becoming more established and pervasive in the
    Commission Strategic Planning and Programming Cycle, we suggest that the
    Commission opts for keeping a ‘live’ baseline. This requires some refinement in the
                                           – xii –



    current IA procedure: in particular, when undertaking ex ante IA, DGs, the Parliament
    and the Council should ensure that the IOs corresponding to new proposals are clearly
    identified, and that IOs that are repealed are also listed.
•   Targets can be set for priority areas. This does not preclude the potential for announcing
    an overall ‘political’ target, as was done in some of the analysed countries. After the
    measurement, targets can be adjusted for each DG.
•   When setting targets, it is essential that other EU institutions commit to cooperate with
    the Commission in achieving the targets set. Otherwise, simply setting targets for each
    DG would prove impossible. Such a coordination between the Commission, the Council
    and the Parliament should be sought through an Inter-Institutional Agreement.
•   Institutional communication between the Commission and member states can be
    achieved by replicating the fruitful collaboration with the International SCM Network
    that made this Final Report possible. As the participation of EU member states to the
    Network is increasing, this would automatically ensure that the Commission avails of a
    growing number of counterparts and data sources when undertaking the measurement.
    Moreover, the use of web-based tools such as SINAPSE would prove essential.
     PILOT PROJECT ON ADMINISTRATIVE BURDENS
                                                 FINAL REPORT



1 INTRODUCTION
The European Commission will be soon launching an Action Programme to measure
and reduce administrative burdens generated by EU legislation in the EU25. A pivotal
role in light of the upcoming programme is played by the development of an EU
common methodology to assess administrative burdens, such as to enable cross-
country comparison and the identification of pieces of EU legislation which create
unnecessary burdens on private and semi-private businesses, citizens, and public
administrations. The reference model adopted by the Commission for the development
of the EU common methodology is the Standard Cost Model developed in the
Netherlands and currently applied – although with some important methodological
and procedural differences – in a growing number of member states with the aim of
measuring and reducing administrative burdens.
The reduction of administrative burdens is directly linked to the Lisbon strategy and
the need to boost European competitiveness in the years to come, as confirmed by a
number of recent studies. For example, in 2004 CPB, the Dutch Bureau for Economic
Policy Analysis, estimated that the magnitude of administrative burdens reaches at
least 3.6% (i.e. the Dutch percentage) of the EU GDP, i.e. 340 billion euros.7 Reducing
such burden by 25% would imply, according to such estimates, an increase in GDP of
1.7%. In Denmark, similar studies show that a reduction in administrative burdens of
25% would result in a rise in Danish GDP of more than €1.5 billion (0.8%). In Denmark,
the magnitude of administrative burdens has been estimated at 2.1% of GDP.8

Over the past few years, the European Commission has already devoted significant
attention to the variants of the Standard Cost Model currently implemented in these
member states. In early March 2005, the Commission presented a prototype model
("EU Net Administrative Cost Model") and announced its intention to put it to the test.9
On 22-23 March 2005, the European Council requested “the Commission and the
Council to consider a common methodology for measuring administrative burdens
with the aim of reaching an agreement by the end of 2005”, by taking “advantage of


7See P. Tang and G. Verweij, Reducing the administrative burden in the European Union, CPB Memorandum, 24 August
2004. See also below, at Section 4, for a more detailed discussion of these calculations.
8   Cfr. The Danish Reform Strategy. Contribution to EU’s Growth and Employment Strategy (Lisbon Strategy), October 2005.
9“Detailed outline of a possible EU Net Administrative Cost Model”, annexed to the Communication on Better
Regulation for Growth and Employment in Europe , SEC(2005)175 of 16 March 2005.
                                                        – 2 –



the results of the Commission’s pilot projects”.10 The Commission tested the proposed
methodology between April and September 2005. The pilot phase, on the one hand,
confirmed the feasibility and added value of a common EU methodology, and on the
other hand, suggested a number of amendments to the prototype. As a result and in
line with the European Council's mandate, the Commission proposed in its
Communication of 21 October 2005 the adoption of the “EU Net Cost model”, also
called EU SCM.11 It listed a number of possible improvements to the EU SCM, while
making clear that such optimisation was no precondition for its application. This was
demonstrated by the decision to include the proposed methodology in the
Commission’s impact assessment guidelines and evaluation guidelines (an operational
manual for applying the model was included in the IA guidelines on 15 March 2006).12
In this Communication, the Commission also declared its longer-term intention to
explore whether the proposed EU common methodology could be used to assess
cumulative administrative burden at sectoral level. In this Communication, adopted on
21 October 2005, the Commission also declared its longer-term intention to explore
whether the proposed EU common methodology could be used to assess cumulative
administrative burdens at sectoral level.
The main objectives of our analysis are: a) to identify policy areas that are most
responsible for the creation of administrative burdens, based on results already
obtained in the four Member States analysed; b) to explore how the SCM can best be
applied for cross-country measurement; c) to suggest refinements in the EU SCM to
allow its use for ex-post measurement. In this Interim Report, we focus on the variants
of the Standard Cost Model adopted in the four member states (The Netherlands,
Denmark, UK and the Czech Republic) that have completed the baseline measurement
of administrative burdens to date. The results of this pilot project will be another step
to further the Commission’s strategy for reducing administrative costs and setting
common cost reduction targets. The pilot project’s results are also meant to lay the
foundations of the Commission’s Action Programme for reducing administrative costs,
to be published at the beginning of 2007. The Action Programme will launch a large
measurement project across the European Union that will identify what legislation is
most eligible for administrative costs reduction.
This Final Report is structured as follows. In this section, we provide a background
description of the SCM tool, including information on the countries that have adopted
the SCM for the measurement of administrative costs at national level. We also provide


10   Point 24, Presidency conclusions
11 See Staff Working Document, Developing an EU common methodology for assessing administrative costs imposed by EU
legislation - Report on the Pilot Phase (April– September 2005), SEC(2005) 1329, 21 October 2005 annexed to the
Communication on a “EU common methodology for assessing administrative costs imposed by legislation”.
12These documents are available at: http://ec.europa.eu/governance/impact/docs_en.htm. The Commission pursued
the optimisation of the methodology with the help of the Member States (Standard Cost Model Steering Group). In July
2006, it set up a virtual network of experts through SINAPSE, a web-platform for the collection of expertise. This will
prepare the ground for the work of the High Level Group of national experts on better regulation, set up to advice the
Commission on this issue and others. One aim of this is to agree on database interface and standard ratios for
overheads.
                                                        – 3 –



information on the relevance of the Commission’s strategy for reducing administrative
burdens within the more general Commission’s Better Regulation action plan. Section 2
contains a detailed description of national experiences in the four countries that have
completed the baseline measurement, covering the methodological, procedural and
organisational features of the models adopted, plus the results obtained in the baseline
measurement. In section 3 we offer an assessment of the main similarities and
differences in the models adopted by each of the surveyed member states and the
proposed EU Net Cost Model. We also describe the findings of the pilot project as
regards potential priority areas for simplification at EU level. This includes the
identification of sectors most affected by administrative burdens and of the most
burdensome EU directives and regulations. Section 4 provides some suggestions on
methodological and organisational arrangements that will have to be adopted in light
of the upcoming pan-European measurement. We also offer operational hints and
suggestions on target-setting before and after the baseline measurement.

1.1     Methodological note

This pilot study was carried out in the period July-October 2006 on the basis of
materials and documents provided by the European Commission’s DG Enterprise and
Secretariat General, as well as document and measurement results provided by
officials of the surveyed member states that are in charge of implementing the SCM. In
order to describe in detail the experience of the four member states, a questionnaire
was sent to all four competent bodies and subsequent visits were organised to refine
the main findings. Desk research was also undertaken to describe the main differences
between the variants of the SCM adopted in each of the four member states, as well as
to explore the main challenges for the full implementation of the EU SCM in the
forthcoming Commission Action Programme on the reduction of administrative
burdens. The authors are very grateful to officials in DG Enterprise and the Secretariat
General of the European Commission, as well as to officials at the Dutch IPAL, the UK
Better Regulation Executive, the Danish Commerce and Company Agency and the
Czech Better Regulation Unit for providing valuable support and cooperation in the
course of this study.

1.2     Background Description of the prototype Standard Cost Model (SCM)

In this section we provide a description of the essential features of the Standard Cost
Model (SCM), to be taken as reference for the comparative analysis that will be carried
out in the next sections of this interim report. The SCM was developed by the Dutch
Ministry of Finance to provide a simplified and consistent method to measure and
consequently reduce the impact of legislative regulation on businesses – the so-called
administrative burdens.13 The starting point is that regulation may impose costs –


13Countries exercising the SCM model are using slightly different definitions of businesses. In principle the term
“businesses” means organisations in the private sector, whereas this definition could also include for example charities
and the voluntary sector.
                                                     – 4 –



direct financial costs (taxes, fees, charges, penalties etc.) or costs of compliance with
regulatory requirements – and accordingly hampers the competitiveness of businesses.
To be able to contribute to competitiveness by reducing administrative burdens, the
impact of legislation has to be measured. As a result, the SCM targets the quantitative
dimension of administrative burdens.
As shown in Figure 1 below, administrative burdens are considered as a part or subset
of administrative costs. They are the part of administrative costs which is caused by
regulatory requirements. Conversely, administrative costs normally also include
activities which would be carried out also absent regulation.

         Figure 1 – Administrative Burden versus Administrative Cost

                            Overall admnistrative costs
                            Overall admnistrative costs



                                                   Administrative costs
                                                   Administrative costs
                   Business
                   Business                            from central
                                                        from central
              administration costs
              administration costs                government regulation
                                                  government regulation




                                                                   Administrative activities that
                                                                   Administrative activities that
                          Administrative activities that
                          Administrative activities that
                                                                    businesses only conduct
                                                                     businesses only conduct
                          businesses may continue if
                          businesses may continue if
                                                                   because regulation requires
                                                                   because regulation requires
                             the regulations were
                             the regulations were
                                                                      it, i.e. administrative
                                                                       it, i.e. administrative
                                   removed
                                    removed
                                                                                burdens
                                                                                burdens


                Source: SCM Network, International Standard Cost Model Manual, p. 7



The main strength of the SCM is the high level of detail it can reach in measuring
administrative costs through investigation of individual activities. The methodology
followed by the SCM makes it possible to produce standardised figures for the
resources used by businesses in order to comply with specific laws and executive
orders. In practice, the SCM aims at identifying those textual parts of regulation that
require businesses to make information available to public authorities or third parties.
These textual parts are called ‘information obligations’ (IOs). It is possible – although
often difficult – to subdivide these information obligations into smaller pieces called
‘data requirements’ (DRs). To fulfil the required information obligations – or rather, to
produce the requested information – affected businesses normally have to carry out
additional administrative activities. The costs of these additional activities may arise
from internal consumption in form of use of employees’ time or on the other hand
from external consumption of resources (e.g., fees for external experts, outsourcing
costs, and cost of acquisitions). Therefore the administrative costs of a piece of
legislation are defined as the costs of carrying out the various activities required by
regulation. Figure 2 shows how the SCM splits the requirements of regulation into
detailed activities, which can be measured or further estimated.
                                                 – 5 –




      Figure 2 – Information obligation, data requirements and activities

        Regulation



                                                                                 Internal costs
                                                                                 Internal costs
                 Information obligation 1
                  Information obligation 1   Data requirement 1
                                             Data requirement 1    Activity 1
                                                                   Activity 1    •Hourly rate
                                                                                 •Hourly rate
                                                                                 •Time
                                                                                 •Time
                                                                                 •Overhead
                                                                                 •Overhead
                                                                   Activity 2
                                                                   Activity 2
                                             Data requirement 2                  External costs
                                                                                 External costs
                                             Data requirement 2
                                                                                 •Hourly rate
                                                                                 •Hourly rate
                 Information obligation 2
                  Information obligation 2                                       •Time
                                                                                 •Time
                                                                   Activity n
                                                                   Activity n
                                                                                 Acquisitions
                                                                                 Acquisitions
                                             Data requirement n
                                             Data requirement n                  (Monetary value)
                                                                                 (Monetary value)

                 Information obligation n
                  Information obligation n




                 Source: SCM Network, International Standard Cost Model Manual, p. 9



This detailed breakdown of administrative costs enables the measurement of the
anticipated administrative consequences of a draft piece of legislation before its
implementation (ex-ante measurement), as well as of the factual administrative
consequences for the businesses in respect of legislation already in force (ex-post
measurement). Ex post measurements that are carried out on the overall administrative
costs in a given policy area or on the entire corpus of legislation in force are defined as
baseline measurements – i.e. a statement of the overall administrative costs that
businesses must face in following a current set of regulations at a given point in time.
Such measurements are also conducted in order to keep the baseline measurement
updated over time with the consequences of new or amended regulations.
The SCM also allows – in most cases – for differentiating the administrative burden
according to sources of regulation. In the prototype SCM, the administrative burdens –
more precisely, the DRs stemming from IOs contained in selected legislation – are
segmented into burdens caused fully by international legislation; burdens caused by
international legislation but the implementation of which is in the remit of national
governments; burdens caused solely by national legislation; and burdens caused by
regional or local legislation (for countries with a federal/regional structure).
This methodology also makes it possible to further break down the first two categories
by distinguishing between administrative burdens caused by the EU-legislation and
those caused by other international legislation. However, the current implementation
of the SCM in some EU member states, as will be explained in further detail in section
                                                  – 6 –



2, currently does not allow for such an exercise.14 To the contrary, all surveyed member
states distinguish between:
§      Category A data requirements: this category includes the data requirements (and their
       fulfilment) generated by legislation enacted at EU or international level. The related
       administrative burdens consequently fall outside the sphere of influence of national
       governments.
§      Category B data requirements: these include data requirements that arise from EU
       and international legislation and regulations, which allow for some degree of
       flexibility in the implementation at national level. As a result, although not
       originating from national legislation, there administrative burdens can be
       considered to fall at least partially under the sphere of influence of national
       governments.
§      Category C data requirements: this category includes data requirements generated by
       national legislation and regulations. The extent (and reduction) of the related
       administrative burdens can therefore be considered to fall fully under the sphere of
       influence of national governments.
These categories do not include administrative burdens caused by legislation or
regulations enacted at sub-levels of government (e.g. regional legislation). This is
simply due to the fact that countries that have fully implemented the SCM to date do
not exhibit a multi-level constitutional structure. However, other countries – e.g. Italy –
are introducing an additional category (termed ‘Category D’) to account for regional
legislation in implementing their variant of the SCM tool.
According to the current practice in most countries that have adopted the SCM, the
classification of regulatory origin is achieved through seven steps of analysis, that are
reported below, in Figure 3.




14   Notable exceptions are Denmark and the UK.
                                                                         – 7 –



                          Figure 3 – Decision tree for classification of origin

                                                                                                     Yes
        1. Is the data requirement solely a result of national policy?
        1. Is the data requirement solely a result of national policy?                                          Category C
                                                                                                                Category C

                                                           NO
        2 Does the data requirement imposed in a European or international context specifically
        2 Does the data requirement imposed in a European or international context specifically
                                                                                                     Yes
        state the way in which this obligation must be met?
        state the way in which this obligation must be met?                                                     Category A
                                                                                                                Category A

                                                           NO
        3. Does the data requirement imposed in a European or international context contain
         3. Does the data requirement imposed in a European or international context contain
        national information obligations (that are not internationally obligatory)? Such as the
         national information obligations (that are not internationally obligatory)? Such as the
        imposition of extra requests for information.
         imposition of extra requests for information.
                                                   Either // or
                                                    Either or
        4. Is the data requirement imposed in a European or international context expanded by the
         4. Is the data requirement imposed in a European or international context expanded by the
        national government? Such as by increasing the frequency of information obligations or
         national government? Such as by increasing the frequency of information obligations or
        imposing the information obligation on additional target groups.
         imposing the information obligation on additional target groups.


                                 5a. Classify the ‘national’ section of the data requirement in
                                 5a. Classify the ‘national’ section of the data requirement in
                                                                                                     Yes
                                 Category C
                                 Category C                                                                     Category C
                                                                                                                Category C
             Yes

                                                                                                                Category A
                                                                                                                Category A
                                 5b. Are the means of implementation also stipulated in the
                                  5b. Are the means of implementation also stipulated in the           Yes
                                 ‘international’ section of the requirement
                                  ‘international’ section of the requirement
             NO                                                                                            NO
                                                                                                                Category B
                                                                                                                Category B
        6. The data requirement arises from European or international directives but their
         6. The data requirement arises from European or international directives but their
        implementation is not stipulated internationally.
         implementation is not stipulated internationally.                                           Yes
                                                   Either // or
                                                   Either or                                                    Category B
                                                                                                                Category B
        7. The data requirement is imposed by the national government for
         7. The data requirement is imposed by the national government for
        implementation/enforcement of European or international legislation/regulation
         implementation/enforcement of European or international legislation/regulation




                           Source: SCM Network, International Standard Cost Model Manual, p. 27.




1.3     How to estimate the administrative burden using the SCM

As already mentioned, the basic idea in the SCM tool to estimate the administrative
burden of regulation is to split observed pieces of legislation into information
obligations, and further break down information obligations in data requirements.
Each data requirement is then expressed in terms of administrative activities: the cost
of each administrative activity is then estimated with the following basic formula:


    Cost per administrative activity = Price x Time x Quantity (population x frequency)


Whereas:
§     the price is a tariff for additional activities, divided in internal – e.g. hourly wage as
      a measure of the unit costs of additional activities demanded by information
      obligations – and external prices – e.g. unit costs (hourly rates) of outsourcing the
      activity; whereas only activities demanded by the information obligation are
      relevant.
                                                      – 8 –



§    Time means the number of time units (e.g. hours) needed to perform the required
     activity;
§    Quantity represents how often the activity has to be carried out per year
     (frequency) by the effected number of businesses (population).
Additional costs (e.g. necessary acquisitions) also have to be considered as elements of
cost relevant to the administrative activity at hand.
Following this formula for each activity of an information obligation, the
administrative costs generated by a piece of legislation can be estimated by summing
up the costs of all activities and all information obligations caused by that legislation.
Thus, the relevant structure of splitting-up regulation can be illustrated as in Figure 2
above.
The abovementioned measurement exercise seems, at least conceptually, simple. In
reality, problems may arise, for example, because of the need to identify relevant cost
parameters and gather information on prices, time and quantities.15 As shown by
vanguards of the SCM such as the Netherlands and Denmark, the best way to collect
data seems to be asking the businesses themselves what they are doing or have to do to
fulfil the required information obligations. Consulting a sample of affected businesses
and also business experts can deliver the required data to estimate the costs for sectors
and also for regulation areas. Such consultation can take different forms, from face-to-
face or telephone interviews to the organisation of workshops or business panels.
However, sampling patterns and choices can affect the reliability of the final estimates:
for such reason, other tools can be used for data collection, ranging from the
consultation of experts to ad hoc consultancy studies. The SCM provides for tools that
are aimed at reducing the uncertainty related to the model implementation, such as
standardised lists of IOs and administrative activities, and criteria for selecting the so-
called “normally efficient firm”, which is taken as reference for the calculation of price,
time and quantity in the formula above. As regards standardised lists, the Manual
published by the International SCM Network to reduce administrative burdens offers a
non exhaustive list of IOs and administrative activities. Table 1 below shows the list of
IOs adopted as reference by the International SCM Network.




15Frequency is normally easier to determine, as mandatory fulfilment of some IOs is usually enshrined in the wording
of the legislation.
                                                  – 9 –




                                    Table 1 – Examples of IOs

•   Returns and reports: This relates to returning and reporting information, e.g. tax deducted
    from income at source.
•   Applications for permission for or exemption from…: This relates to all types of
    application for permission for or exemption from various activities, e.g. application for a
    licence to sell spirits.
•   Applications for authorisation: This relates to applications for authorisation to carry out
    certain activities, e.g. authorisation as a sewer contractor.
•   Notification of activities: This relates to businesses having to notify the authorities of
    specific activities, e.g. notification of the transportation of dangerous cargo.
•   Entry in a register: This relates to businesses having to be entered in a register or on a list,
    e.g. entry in the business register.
•   Carrying out inspections of…: This relates to the business itself carrying out inspections of
    machinery and equipment that can represent a risk to health or the environment, or
    monitoring the conditions for employees. Inspections are normally carried out by certified
    organisations, e.g. drawing up a workplace assessment.
•   Applications for subsidies or grants for…: This means the business applying for a subsidy
    or the like, e.g. a subsidy for job training.
•   Keeping commercial emergency plans and programmes updated, etc…: This relates to the
    business keeping those documents required by the authorities up to date. It would include
    manuals and emergency plans, for example.
•   Cooperating with audits/inspections of…: This relates to informing and assisting
    inspectors who carry out inspections of and auditing work for a business, or who visit a
    business in connection with enforcement of a regulation.
•   Statutory labelling for the sake of third parties: This means, among other things, labelling
    products or installations with consumer information, e.g. energy labelling of domestic
    appliances.
•   Providing statutory information for third parties: This relates to providing third parties
    with information (as distinct from labelling), e.g. a financial prospectus to accompany
    investment products.
•   Framing complaints and appeals: This relates to submitting complaints about and
    (possibly later) appealing against a decision made by the authorities. This information
    obligation should only be analysed if it is characteristic of a normally efficient business to
    complain in the area in question.

Source: SCM Network, International Standard Cost Model Manual, p. 24.



In addition, Table 2 contains a reference list of administrative activities that was
developed by the International SCM Network.
                                                  – 10 –



                     Table 2 – Examples of administrative activities

1.   Familiarisation with the information obligation. The resource consumption of businesses
     in connection with familiarising themselves with the rules for a given information
     obligation.
2.   Information retrieval. Retrieving the relevant figures and information needed to comply
     with a given information obligation.
3.   Assessment. Assessing which figures and information are necessary for the public
     authorities to accept the report.
4.   Calculation. Performing the relevant calculations needed for the public authorities to
     accept the report.
5.   Presentation of figures. Presenting the calculated figures in tables or the like.
6.   Checking. Checking the calculated figures, e.g. by reconciliation with other data.
7.   Correction. If the business’s own checks reveal errors in the calculations, corrections are
     made afterwards.
8.   Description. Preparation of description, e.g. the directors’ report in the Danish Financial
     Statements Act.
9.   Settlement/payment. Payment of tax, charges or the like.
10. Internal meetings. Meeting held internally between the various personnel groups involved
    in complying with the information obligation.
11. External meetings. Meetings held in cases where compliance with the information
    obligation requires meetings with an auditor, lawyer or the like.
12. Inspection by public authorities. Businesses must assist external inspectors when they
    carry out their inspection at the business.
13. Correction result from inspection by public authorities. If the external inspection
    identifies faults/defects, corrections are made afterwards.
14. Training, updating on statutory requirements. Relevant employees must be kept up to
    date with rules that change frequently (at least once a year).
15. Copying, distribution, filing, etc. In some cases the report is copied, distributed and/or
    filed in order to comply with the information obligation. It may also be necessary to store
     the information obligation with a view to subsequent production in connection with an
     inspection.
16. Reporting/submitting information. In cases where compliance with an information
    obligation requires the submission of information on the business, the information must be
    sent to the relevant authority.

Source: SCM Network, International Standard Cost Model Manual, pp. 25-26.



Finally, as regards the identification of the “normally efficient business”, the SCM tool
is not conceived to account for burdens generated by the inefficiency of the businesses,
but is meant to capture the impact that legislation in force might exert on businesses
                                                      – 11 –



that carry out their tasks in a reasonably efficient way. For such reason, once the data
have been collected, e.g. through interviews or focus groups, the SCM prescribes that
the consultant or official in charge of implementing the SCM proceeds to assess how
long it would take a normally efficient business to carry out the various administrative
activities required to comply with a data requirement for a given IO. On this basis, the
internal/external/acquisition costs faced by the businesses to comply with the IO are
calculated. Figure 4 below illustrates some examples of how collected data can be
standardised in order to produce a reliable estimate for implementation within the
SCM tool.

                     Figure 4 – Identifying the normally efficient business

       Administrative activity A:                             Administrative activity B:
         Company 1                  10 min.                    Company 1               10 min.

         Company 2                  10 min.                    Company 2               20 min.
                                                 10 min.                                         15 min.
         Company 3                  10 min.                    Company 3               10 min.

         Company 4                  10 min.                    Company 4               20 min.

         Company 5                  30 min.                    Company 5               15 min.



       Administrative activity C:                             Administrative activity D:
         Company 1                  10 min.                    Company 1               10 min.

         Company 2                  20 min.                    Company 2               20 min.
                                                 More
                                                                                                 20 min.
         Company 3                  50 min.      interviews    Company 3               25 min.

         Company 4                    2 min.                   Expert 1                20 min.

         Company 5                    5 min.                   Expert 2                15 min.



                       Source: SCM Network, International Standard Cost Model Manual, pp. 55



As explained by the International SCM Network, as regards activity A in Figure 4,
business 5 is not counted as a normally efficient business, as it is too different from the
others in the sample. In the case of activity B, the final figure is selected by the
consultant or competent official, whereas for activity C, more interviews are needed in
light of the significant variance of the results. In the case of activity D an expert
assessment is made of what the level is for a normally efficient business.16 The
reliability of such estimates – and the variance of the data collected – normally depend
on the accuracy of the segmentation carried out prior to data collection. The more
accurate the segmentation, the easier should be to reach a reasonable assessment of the
time needed for a normally efficient firm to perform selected tasks.




16   See International SCM Manual, at 55.
                                                – 12 –



This also means that one of the most crucial features of the SCM tool is the process that
must be followed during the baseline measurement. The next section summarises the
main phases of this process.

1.4       Phases of a standard cost analysis according to the SCM Network

The SCM Network International Manual provides a description of the phases in which
a standard cost analysis can or should be broken down. These are presented below, in
Table 3.

               Table 3 – The phases of a prototype standard cost analysis
Phase 0. Start-up

      •        The business-related regulation to be included in the analysis is identified before
               the preparatory analysis is started. In the case of large analyses, especially baseline
               measurements, but also certain ex-ante analyses and updates, start-up meetings
               attended by the responsible ministry, the Commerce and Companies Agency, the
               consultants and any other relevant parties are held.

Phase 1. Preparatory analysis

      Step 1   The text of the regulation is broken down into a number of information
               obligations. The information obligations are then broken down into data
               requirements and relevant administrative activities are identified. The responsible
               ministries then start to categorise the regulation into national and international
               elements.

      Step 2   Related regulation is identified and demarcation carried out.

      Step 3   The information obligations are classified according to type.

      Step 4   The relevant business segments are identified.

      Step 5   Identification of population, rate and frequency.

      Step 6   Clarification of which information obligations are to be assessed by means of
               business interviews and which will have time consumption estimated later in
               phase 3 (step 14) by means of expert assessment.

      Step 7   The relevant cost parameters are identified.

      Step 8   An interview guide is prepared for use in interviews.

      Step 9   An expert review of steps 1-8 is carried out.

Phase 2. Analysis of time consumption and costs in businesses

      Step 10 Typical businesses from the legislation’s target group are selected for interview.

      Step 11 The businesses are interviewed.

      Step 12 Standardisation of time and resource consumption per activity per business
              segment.
                                              – 13 –



   Step 13 An expert review of steps 10 and 12 is carried out.

Phase 3. Calculation and presentation

   Step 14 The validated data are extrapolated to a national level.

   Step 15 The results are presented in a report and the data set is entered in the overall
           database.

              Source: SCM Network, International Standard Cost Model Manual, pp. 20-21.



As shown in Table 3, the analysis follows four main phases and requires the
involvement of ministries/departments, consultants, stakeholders and (where
available) a central coordinating unit. In phase 0 (“Start-up”), initial meetings of
departments, consultants and other key stakeholders have to take place to clarify the
areas to be investigated and carry out preliminary activities, such as preparing a data
set of business-related regulation to be included in the analysis.
In phase 1 (“Preparatory analysis”) decisions are made how to carry out the analysis.
Therefore questions concerning the data requirement have to be clarified. One of the
most important questions here is which business-related information obligations are
chosen. After identifying the fields of interest (information obligations) the
administrative activities done by the businesses to fulfil these obligations have to be
specified. The next step is to identify the relevant background variables (e.g. the cost
parameters) and finally the business segments affected by the regulation. An important
aspect not only at this phase is to involve relevant experts in evaluating and validating
the classifications and specifications done in the preparatory work of “Phase 1”.
In phase 2 (“Analysis of time consumption and costs in businesses”) empirical data is
collected from interviews with a sample of typical businesses belonging to the
population affected by a given piece of legislation. Therefore a decision has to be made
which businesses are chosen to be asked to cover all relevant segments in the
population. The chosen businesses should also adequately represent the business
structure in the sector of the national economy affected by the legislation at hand. As
already recalled, there are different ways to conduct the interviews, including face-to-
face, telephone or focus group interviews.
After collecting the empirical data, phase 3 (“Calculation and presentation”) completes
the process. At this stage, the collected data are scaled up to the national level for each
segment and also for each administrative activity. Presentation of the measurement
results implies that data reported show the most burdensome regulations and identify
areas for reform. Further calculations demand the transfer of the data to a database.
The reporting sheet is normally standardised: an example of reporting sheet is
provided at Figure 5.
                                                  – 14 –



                            Figure 5 – Example of reporting sheet




Source: SCM Network, International Standard Cost Model Manual, p. 59..



The SCM, as already recalled, is not only a tool for the measurement of administrative
costs imposed by legislation, but also for the reduction of such costs. As a result,
following the four main phases of the analysis, priority areas for reform are identified
and targets are often assigned to competent authorities (e.g. ministries) to realise the
potential for administrative simplification.

1.5    Countries that have adopted the SCM

Since its development in the Netherlands, the SCM has been adopted by many other
EU member states. These countries are situated in different stages of applying the
model. The Netherlands, Denmark, the United Kingdom and the Czech Republic
already completed a baseline measurement, whereas others – including Austria,
Belgium, France, Germany, Estonia, Finland, Hungary, Ireland, Italy, Latvia, Norway,
Poland and Sweden – are still carrying out the measurement or have just launched
pilot projects on individual areas or pieces of legislation.
The Netherlands as vanguard of the SCM prepared an ex-post inventory of total
administrative burdens for the businesses in 2003. Under the lead of the Ministry of
Finance (the Interministerial Project Unit for Administrative Burden (IPAL) is the
central coordinating unit coordinating the implementation of the SCM, and is based in
the Ministry of Finance) the measurement led to an estimated total for all
administrative burdens of € 16.4 billion, as high as 3.6% of the Dutch GDP. Based on
these results, the Dutch Cabinet outlined the target of reducing administrative burdens
by 25% before the end of 2007.
The Danish reduction target is similar to the Dutch one. Also in Denmark they
reduction should be 25% of the already estimated administrative burdens. The
                                         – 15 –



difference is the timeframe for achieving the target, as the Danish government planned
to achieve the target by 2010. The full scale measurement started in August 2004 and
was completed in March 2006. The lead in the Danish measurement process was taken
by the Division for Better Business Regulation in the Danish Commerce and
Companies Agency (an agency under the Ministry of Economic and Business Affairs).
All 15 ministries with business-relevant legislative and regulatory competences were
involved in the measurement. The Danish approach also showed the development of
the level of administrative burdens since November 2001 when the current
Government was assigned. The total administrative burden was estimated as 2.1% of
Danish GDP corresponding to 32.2 billion Danish Kroner.
In the United Kingdom, the Better Regulation Executive (BRE) located within the
Cabinet Office was established in May 2005 to coordinate, inter alia, the strategy for
reducing administrative burdens. The Government had agreed to adopt the SCM two
months before. The measurement started in September 2005 and the results will be
made publicly available in November 2006. Sixteen departments were involved in this
measurement. In the meanwhile a separate exercise was performed by the tax
authority (HMRC) and the Financial Services Authority (FSA) of the UK. Their results
were already published in March and April 2006.
In the Czech Republic, the Better Regulation Unit – part of the Department of
Regulatory Reform and Central State Administration Reform (located within the Office
of the Czech Republic Government) – was assigned to coordinate all activities targeting
the reduction of administrative burden. An overall measurement was carried out
between March and December 2005. All business related regulations in 13 ministries,
11 central administrative authorities were included.
Examples from other member states include the following:
§   Sweden is already at the stage of carrying out the measurement process. Since July
    2004 the Swedish Agency for Economic and Regional Growth (Nutek) is
    responsible for applying the SCM to measure administrative burden. First areas
    were measured in May 2004. In 2007 the overall measurement is expected to be
    finished. After the completion of each measurement the Swedish government sets a
    reduction target.
§   Estonia carried out two SCM pilot projects in 2005 to test the SCM. Up to now there
    is neither a reduction target set nor a SCM-related simplification project based on
    the pilot studies started.
§   Norway plans to measure administrative costs of businesses under the lead of the
    Ministry of Trade and Industry up to October 2007 to form the basis for
    considerable reduction targets by autumn 2009.
§   Italy started a pilot measurement whereas the SCM is being applied to 25 cases of
    permits and other administrative obligations for the exercise of business activities.
    Results are expected to be available by September 2006.
                                                         – 16 –



§       After three pilot projects, Poland has just entered the initial phase of sector AB
        measurement, which will cover 150 information obligations identified in 20-25 legal
        acts.17 The results of the initial measurement will be presented at the end of 2006.
§       Ireland is interested in using the SCM and will therefore start pilot measurements
        in the coming months.
§       The Austrian government decided on 27 April 2006 to reduce the administrative
        burden for businesses by 25% until 2010. Therefore the SCM should be applied to
        estimate the administrative burden. Measurement results will be available in June
        2007.
§       Germany has recently decided to carry out a full scale measurement exercise in
        2007.
§       Finally, in France the last report of the Conseil d’État on the “Juridical security and
        complexity of the law” has identified the inflation of norms as a major cause of
        inefficiency and bad quality regulation. The Minister in charge of the reform of the
        State has launched a hundred of modernisation audits, in order to alleviate the
        administrative burden for businesses and individuals. Moreover, at the end of 2005,
        some tests were carried out with exterior consultants on 110 authorisations
        concerning businesses, and over 30 concerning the users, so that a measure of
        administrative burden may be established. The tests shall be applied to all types of
        obligations, according to the SCM method18.
As a preliminary statement, it must be recalled that the scope and methodology of the
SCM tools adopted by each of these member states differ noticeably. The SCM can be
used both ex ante and ex post. When used ex ante, the SCM can be applied within
regulatory impact assessment procedures, which helps preventing new pieces of
legislation from creating unnecessary administrative burdens on businesses, citizens or
administrations. The methodology applied in ex ante measurements is in some
circumstances different from that used for ex post measurements. In addition, the
integration of the SCM with RIA significantly depends on how well developed RIA is
at national level.
Moreover, countries that are measuring administrative burdens with SCM tools have
targeted different areas, as shown in Table 4 below.19




17The project identified four burdensome areas: labour law, environment protection regulations, tourist services and
public aid.
18   Conference on simplification, Paris, 9 June 2006.
19   Taken from SCM Annexes UK
                                                             – 17 –



             Table 4 – Overview of measurements for businesses per country




1.6        The EU better regulation and simplification agenda

The Better Regulation agenda of the Commission is deeply rooted in EU overarching
legal principles, most notably in the application of the Treaty-based proportionality
principle to be found in the EC Treaty, provides that the Commission should “take
duly into account the need for any burden, whether financial or administrative, falling
upon the Community, national governments, local authorities, economic operators and
citizens to be minimised and proportionate to the objective to be achieved”.20
The current EU Better Regulation and simplification strategy can be traced back to the
mandate issued by the European Council at the Lisbon meeting in 2000, and later
confirmed at the Stockholm, Laeken and Barcelona summits. Under such mandate, the
European Commission launched an extensive consultation and published an initial
interim report (for the Stockholm Council), a White Paper on European Governance
and a political communication (for the Laeken European Council), which ultimately
led to the publication of the European Commission’s Action Plan on “Simplifying and
improving the regulatory environment”, published on June 5, 2002.21 In that Action
Plan, the Commission followed most of the recommendations issued by the high-level
consultative group (the so-called “Mandelkern Group”) set up by the Ministers
responsible for the Civil Service in November 2000. The Action Plan included actions
falling within the Commission’s remit, actions proposed to the European Parliament
and Council, actions designed to ensure the effective transposition and application of
legislation by the Member States, and initiatives to promote a common legislative
culture within the EU.


20   Protocol 30, on the application of the principles of subsidiarity and proportionality, Art. 5.
21See European Commission, Action Plan on Simplifying and improving the regulatory environment (COM(2002) 278),
2002.
                                                              – 18 –



Alongside the 2002 Action Plan, the Commission issued two communications, one on
minimum standards for consultation and another which launched the new EU
Integrated Impact Assessment (IIA) model.22 The objectives of the latter were to
“improve the quality of Commission proposals, to ensure an analysis of the economic,
environmental and social impacts of a proposal and to improve and simplify the
regulatory environment”. Reference to the assessment of administrative burdens
resulting from proposed new legislation was already included in the Technical Annex
to the 2002 Impact Assessment Guidelines.
However, no specific strategy on the measurement and reduction of administrative
burdens caused by EU legislation was initially foreseen in the 2002 Action Plan, neither
as a stand-alone tool, nor within the impact assessment model. In subsequent years, the
Commission showed increased attention for the problem of administrative burdens
both in terms of ex post screening of existing legislation23, and launching a pilot project
on indicators of regulatory quality (IRQ) and a project for the ex post evaluation of the
costs EU legislation and their burden on businesses, which led to the publication of a
final report in May 2005.24 The Commission has developed a set of structural indicators
in the framework of the Lisbon strategy. There is, however, no specific indicator on
administrative obligations imposed by legislation. In May 2003, the Commission
committed itself to “develop, in close cooperation with Member States, appropriate
indicators to measure progress towards a higher-quality regulatory framework and
lower administrative burdens, starting with the Internal Market”.25
The 2003 Inter-institutional Agreement on Better Law-making, the joint Letter of the
Irish and three incoming presidents of ECOFIN filed on January 2004, the “Doorn
Motion” within the Legal Affairs Committee of the Parliament and the Joint statement
issued on December 2004 by the Irish, Dutch, Luxembourg, UK, Austrian and Finnish
presidencies on “Advancing Regulatory Reform” were all evidence of a growing
interest for linking impact assessment to competitiveness at EU level.
In particular, in the response of President Prodi to the 2004 Joint Letter by the Irish and
three incoming presidencies of ECOFIN, the Commission agreed to examine whether
“assessment relating to the administrative burden for companies needs to be further
improved”, acknowledging the relevance of this issue. The next day, the Council
(ECOFIN) called for the development of a method for measuring the administrative
burden on business, and the invitation was later confirmed in both the Spring
European Council 2004 and the European Council on 4-5 November 2004, which
supported the idea of developing of a common methodology for measuring
administrative burdens, and welcomed the Commission’s intention to present a


22   See Renda, Impact Assessment in the EU. The State of the Art and the Art of the State, CEPS, 2006.
23   Framework action “Updating and simplifying the Community Acquis” (COM(2003)71, February 2003)
24 See Rambøll, Ex-Post Evaluation of EC Legislation and its Burden on Businesses, Study for European Commission DG
Enterprise, May 2005; the final results of the IRQ project are available at http://www.bradford.ac.uk/irq/ (visited on 9
September 2006).
25 Communication from the Commission, Internal Market Strategy – Priorities 2003-2006, COM(2003) 238 final, 7 May

2003. Section B.8. Simplifying the regulatory environment, (b) Actions, No 4.
                                                    – 19 –



communication on such issue, and to refine the methodology with the cooperation of
Member States through pilot projects before implementing the common methodology
in its revised guidelines on impact assessment.
On March 16, 2005 the Communication on Better Regulation for Growth and
Employment in the European Union included, as a companion Staff Working Paper, a
detailed outline of a possible “EU Net Administrative Cost Model” built with reference
to the Dutch SCM. In the Staff Working Paper, administrative costs were defined as
the “costs arising from reporting and information obligations laid down by
legislation”, and considered as “one among several types of regulatory costs faced by
businesses, public authorities and citizens”.26
In particular, in the Staff Working Paper the Commission assessed the merit of
developing a common approach to the measurement and reduction of administrative
burdens. The main expected benefits of such common approach were the following:
§       clarity about possible differences in procedures adopted at EU and member state
        level;
§       easier cross-country or cross-policy area comparison, benchmarking and the
        development of best practices;
§       economies of scale in terms of data collection and validation.
However, the Commission clarified at the outset that it was not planning to apply the
model within a wide measurement exercise covering entire sectors or even society as a
whole:

             “preliminary analysis suggests that it would be difficult and not cost efficient to
             use an approach such as the ‘EU Net Administrative Cost Model’ … for
             estimating total administrative costs imposed on society or on selected
             sectors. The difficulty would come in particular from the wide variety of
             regulatory cultures in the Union, decreasing reliability of sectoral aggregates of
             micro-assessments, and the fact that applying the Dutch SCM at EU level
             would cost an estimated EUR 100 million”27

To the contrary, the Commission initially conceived its EU Net Administrative Cost
Model as a tool to be applied to individual pieces of new (ex ante measurement) or
existing (ex post measurement) legislation. In this respect, the EU Net Administrative
Cost Model was meant to be integrated in the EU integrated impact assessment model,
to enable the ex ante measurement and reduction of administrative burdens caused by
proposed legislation; and at the same time, as a tool to measure the potential for
cutting red tape in the ex post measurement of selected pieces of EU legislation.



26European Commission, Staff Working Paper, Annex to the 2005 Communication on Better Regulation for Growth and
Jobs in the European Union, Minimizing Administrative Costs Imposed by Legislation, Detailed Outline of a Possible
EU Net Administrative Cost Model, SEC(2005)175, 16 March 2005.
27   Id. (emphasis in original).
                                                        – 20 –



The outline of an EU Net Administrative Cost Model was then amended and refined
through a pilot phase carried out from April to September 2005. The pilot phase was
aimed at testing ways of assessing administrative costs imposed by EU legislation, and
led the Commission to present a revised methodology, now included as Annex 10 to
the Commission’s Impact Assessment Guidelines.28 The revised methodology, also
called EU SCM, is described in detail in the next section.

1.7       The proposed EU SCM

The European Commission’s proposed “common methodology for assessing
administrative costs imposed by legislation” exhibits significant similarities but also
important differences with respect to the Standard Cost Model described above, at
Section 1.2.
As far as similarities are concerned, the EU SCM confirmed the merit of adopting a
“net cost” approach, whereas net costs are the costs introduced by legislation minus
the costs eliminated by legislation at EU and/or national level. As confirmed by the
Commission, this approach exhibits several theoretical and practical advantages over
alternative approaches, in that it is consistent with the Commission’s impact
assessment guidelines as well as with national RIA manuals, but it is also consistent
with the approach adopted by member states that have completed the baseline
measurement using the SCM tool. In addition, a net cost approach is especially useful
in the ex ante measurement of administrative burdens, since it allows for a more precise
assessment of the impact that the proposed piece of legislation will exert on
administrative burdens. Furthermore, reported advantages of a net cost approach
include the suitability for forthcoming sectoral estimates and assessments of
cumulative burdens, and cost savings as regards database updating – a database built
on net costs is constantly and automatically updated.
Secondly, contrary to what the Commission had proposed in earlier documents, the EU
SCM was found to be applicable to the assessment of cumulative burdens, and thus
also for ambitious ex post measurement exercises encompassing whole sectors or – less
likely – the entire corpus of legislation. In this respect, too, the new methodology can be
said to be more comparable with those in use in countries that have adopted and
implemented the SCM tool to date. In addition, in the pilot phase launched in April
2005 – which launched 3 pilot projects for ex post evaluation and 5 projects for ex ante
evaluation29 – the Commission managed to use common definitions and reporting
formats, thus achieving an important step forward in the direction of a common
methodology to be applied by all DGs. The ex ante projects carried out, most of which
have been completed in 2006, also helped the Commission in reaching wide consensus
on the desirability of integrating the common methodology within the Commission’s


28   See Impact Assessment Guidelines, SEC(2005)791, 15 June 2005.
29 See Annex 2 to the Commission’s Staff Working Document, Annex t the Communication on a common EU
methodology for assessing administrative costs imposed by legislation, Outline of the proposed EU methodology and Report
on the Pilot Phase (April-September 2005), SEC(2005)1329, 21 October 2005.
                                               – 21 –



impact assessment model. This, in turn, also means that the same methodology will be
applied both for ex ante and ex post assessments, another feature which appears in line
with the SCM tool.
Thirdly, most of the most important methodological features proposed by the
Commission exhibit strong similarities with the prototype SCM illustrated in section
1.2. above. For example, the Commission proposes to use the same core equation, the
same relevant cost parameters (e.g. internal/external tariffs, cost of equipment and
supplies) and the same formulas used to express the frequency of administrative
activities, and the same approach to the assessment of the performance of a “normally
efficient entity”.30
However, the EU SCM shares a number of peculiarities with national SCM variants.
But also some important differences. These can be summarised as follows:
§       The EU common methodology appears ambitious as regards the type of
        administrative burdens that should be assessed, since it postulates that the model
        should account for burdens imposed by legislation on enterprises, the voluntary sector,
        public authorities and also citizens. As will be explained below, the EU common
        methodology is similar to the current version of the Dutch SCM in this respect, but
        appears broader in scope than other models, such as the Danish and UK models.
§       The EU common methodology includes not only information obligations towards
        public administrations (e.g. accounting requirements), but also information
        obligations towards private parties, such as consumers (e.g. labelling). In this respect,
        the EU SCM is similar to the Dutch and Danish model.
§       In the EU SCM, the burdens to be assessed include (non marginal) one-off costs,
        which is left as an option in the prototype SCM.
§       The EU SCM, like the International SCM Manual, differentiates between
        administrative costs and administrative burdens, but recommends assessing
        administrative burdens and leaving the issue of administrative costs to qualitative
        analysis.
§       The proposed methodology distinguishes clearly between ‘voluntary’ and
        ‘compulsory’ obligations, and excludes the former from the burdens to be assessed.
§       In seeking compliance with the principle of proportionate analysis, the EU
        methodology awards particular importance to the definition of the most suitable
        thresholds to be used to identify information obligations that should be excluded
        from the analysis. The consultation undertaken with some member states
        highlighted that the only possible option would be to set thresholds expressed in
        number of hours, in line with the Danish SCM variant31. However, the threshold set
        by the Danish government, i.e. laws imposing less than 1000 hours of
        administrative work per year, was found to deserve further scrutiny, as its


30   Operational manual, passim.
31   See below, section 2.2.
                                           – 22 –



    application at EU level might create concerns as regards the accuracy of assessing
    administrative burdens imposed on SMEs. This is even more important, as the EU
    model constantly refers to SMEs as the category most affected by administrative
    burdens. The operational manual of the Commission (March 2006) provides that
    “for administrative obligations requiring little equipment, if the amount of time per
    action is small and the frequency low, the obligation does not need to be
    quantified.”
§   In order to avoid ‘spurious accuracy’, Annex 10 to the Commission’s Impact
    Assessment guidelines mandates that DGs estimate a range (worst-best scenario) of
    administrative burdens, instead of a set figure. This arrangement might, of course,
    clash with the need to reach set figures when assessing cumulative burdens. In this
    case, the Commission has clarified that impact assessments and ex post evaluations
    may continue to refer to range of estimates when presenting their findings on
    administrative costs, but DGs should use the median figure when summarising
    findings. In this respect, no significant difference with national models can be said
    to exist in the reporting phase.
§   The proposed common methodology includes an identification of the main steps to
    be followed in the assessment exercise, which comprises 11 steps – as opposed to
    the 15 steps foreseen by the prototype SCM illustrated above, at Table 3. The eleven
    steps are summarised in Table 5 below.



    Table 5 – The phases in the Commission operational manual for ex ante
                      assessment of administrative costs
Phase 1. Preparatory analysis

    Step 1    Identification and classification of information obligations.

    Step 2    Identification of required actions

    Step 3    Classification by regulatory origin

    Step 4    Segmentation

    Step 5    Identification of the frequency of required actions

    Step 6    The relevant cost parameters are identified.

    Step 7    Choice of data sources and, where necessary, development of data capture tools

Phase 2. data capture and standardisation

    Step 8    Assessment of the number of entities concerned (population)

    Step 9    Assessment of the performance of a “normally efficient entity”

Phase 3. Calculation and reporting

    Step 10   The validated data are extrapolated to EU level.
                                                          – 23 –



       Step 11        The results are presented in a report and the data set is entered in the overall
                      database.

                 Source: Operational Manual, Annex 10 to EC Impact Assessment Guidelines, 2005, p.4



The reduction in the number of steps is understandable, as the operational manual is,
on one hand, targeting specific actors and, on the other hand, part of an overall scheme
setting general rules and structures for support and quality control. The manual targets
desk officers and units responsible for assessing the impact of a particular proposal.
Therefore it does not cover aspects linked to ex post evaluation, baseline measurement
of cumulative burden or reduction targets32. Moreover, the manual is but an annex to
the general guidelines for Impact Assessments. The guidelines set general rules for
data collection (how to build a questionnaire, interviews, expert groups, etc.).
Procedures and structures in place (Roadmaps, Interservices Steering Groups, etc.)
cover all IA aspects. There is not point repeating all this in a thematic annex. .
However, there are a – limited - number of substantive differences in the analytical
sequence proposed by the SCM phases and those in the Commission operational
manual. The identification of the population is part of data capture and consequently is
not listed as a preparatory step in the operational manual (see Step 8). The operational
manual considers that a normally efficient entity can only be determined on the basis
of data collected among other things through interviews. Insofar as standardisation is
in turn based on the normally efficient entity, Commission Step 9 'normally efficient
entity' subsumes the SCM Step 11 'interviews' and Step 12 'standardisation'. The
description of SCM Step 10 'typical business' seems to be no more than an extension of
SCM step 4 'segmentation'.
Some of the activities that appear similar in the two models also hide differences in
complexity: for example, the identification of the population and the segmentation are
expected to be way more difficult when applied to the EU25, and the same can be said
for the extrapolation of data to the EU level. Table 6 below compares the two models.




32   For instance, demarcation is by definition not a problem when assessing the burden of a single proposal.
                                                                         – 24 –



            Table 6 – Prototype SCM v. Commission operational manual
                          Prototype SCM                                                         EU Model
                    Phase 0. Start-up

                    Phase 1. Preparatory analysis                                 Phase 1. Preparatory analysis
                        Step 1    Information obligations and
                                  administrative activities .                         Step 1    Information obligations.

                        Step 2    Related regulation and demarcation                  Step 2    Identification of required actions
                        Step 3    Classification of regulatory origi n
                                                                                      Step 3    Classification by regulatory origin
                        Step 4    Segmentation
                        Step 5    Population, rate and frequency                      Step 4    Segmentation

                        Step 6    Scope and data sources                              Step 5    Frequency of required actions
                        Step 7    Relevant cost parameters
                                                                                      Step 6    Relevant cost parameters
                        Step 8    Interview guide
                        Step 9    Expert review of steps 1-8                          Step 7    Choice of data sources

                    Phase 2. Analysis of time consumption and costs               Phase 2. data capture and standardisation
                        Step 10   Typical businesses
                                                                                      Step 8    Population
                        Step 11   Interviews
                        Step 12   Standardisation                                     Step 9    “normally efficient entity ”

                        Step 13   Expert review of steps 10 and 12
                                                                                  Phase 3. Calculation and reporting
                    Phase 3. Calculation and presentation
                                                                                      Step 10   Extrapolation to EU level
                        Step 14   Extrapolation to national level
                        Step 15   Reporting and database entry                        Step 11   Reporting and database entry




Finally, the classification of information obligations by regulatory origin is carried out
differently in the two models. In the EU model, the proposed decision tree for the
classification of regulatory origin was simplified. As a result, the steps followed to
classify the regulatory origin of selected data requirements are significantly different
from those reported above, in Figure 3.
Instead of referring to A, B or C categories and their sub-categories33, the Commission
distinguishes between four types of regulatory origins 1) IO/DRs arising from
international (non-EU) legislation; 2) IO/DRs generated by EU legislation; 3) IO/DRs
imposed by national legislation; and 4) IO/DRs arising from regional pieces of
legislation. This solution was seen as more accurate (as it assigns responsibility to each
level of authority without ambiguity), simpler (as it works with less categories and
does not require to go through a complex decision tree) and more ‘pedagogical’ (as it
relies on descriptive labels rather than letters). In particular, the distinction between EU
directives and EU regulations was discarded because it proved rather unreliable –
some directives detail which information must be provided and how, while some
regulations leave the formulation of the specific data requirements to the discretion of
Member States (e.g. the Intrastat regulation). Table 7 below reports the current EU
standard reporting sheet, which highlights the four categories in which the IO/DRs
have to be classified.




33Category A-EU directive, category A-EU regulation, category A-international + category A-EU directive, category A-
EU regulation, category A-international – International SCM manual at 12.
                                                       – 25 –



                              Table 7 – EU standard reporting sheet




Source: European Commission, Staff Working Document, SEC(2005)175, 16 March 2005, pp. 17-19.




The observation of such differences is a suitable starting point to assess the feasibility
of implementing the EU SCM without requiring major changes in the methodology
currently followed by member states that rely on some variant of the prototype SCM.
These and other problems will be analysed in more detail below, in Sections 3 and 4.

1.7.1 A comparison between the prototype SCM and the EU SCM
Already in the March 2005 “Outline of a possible EU Net Administrative Cost Model”,
the European Commission has presented a summary of the main differences between
the Dutch SCM (on which, see also Section 2.1 below) and the proposed EU
methodology. Some of these differences – for example, the assessment of burdens on
citizens and the possibility of using the model for macroeconomic purposes, such as
cumulative assessment – are today less evident than they were at that time, or do not
exist anymore. But for the remaining aspects highlighted by the Commission,
substantial divergence still exists, which can be partly explained by the different use of
the two models, and the need to adapt the SCM to the peculiar needs and the greater
complexity of applying the model at the EU level. Table 8 below summarises such
differences.
                                                         – 26 –




            Table 8 – Comparison between the Dutch SCM and the EU SCM

                                      Dutch SCM                                             EU SCM
                      Assessment of the costs of administrative           Assessment of the costs of administrative
Aims/purposes         obligations imposed on enterprises and              obligations imposed on enterprises, the
                      citizens, distinguishing between national and       voluntary sector, public authorities and
                      non-national origins (ABC classification)           citizens, distinguishing between international,
                                                                          EU, national and regional (i.e. subnational)
                                                                          origins
                      Both microeconomic and macroeconomic use            Both microeconomic and macroeconomic use

                      “Costs imposed on businesses, when                  “costs incurred by enterprises, the voluntary
Definition of         complying with information obligations              sector, public authorities and citizens in
administrative cost   stemming from government regulation.”               meeting legal obligations to provide
                                                                          information on their action or production,
                      “AB Citizen comprises the costs incurred by         either to public authorities or to private
                      citizens in complying with information              parties.”
                      obligations ensuing from government
                      regulations. It includes both compliance with
                      obligations and the exercise of rights.”

                      One-off costs not taken into account in the         One off costs may be taken into account
                      measurement, but described qualitatively in the
                      reporting

                      Measurement includes ‘business as usual costs’      Measurement includes ‘business as usual costs’
                      but focuses on administrative costs instead of      but focuses on administrative costs instead of
                      burdens                                             burdens

                      Σ=Ρ•Q                                               Σ=Ρ•Q
Core equation
                      Price (P) = tariff x time                           Price (P) = tariff x time
                      Quantity (Q) = n. of businesses x frequency         Quantity (Q) = n. of businesses x frequency

                      Focus on labour costs                               Where appropriate, types of costs other than
                                                                          wages and overheads will be taken into account

                      The SCM is applied to all regulatory proposals      Ex ante application only to proposals imposing
Scope and             and acts in force.                                  major administrative requirements and/or acts
frequency                                                                 identified as particularly burdensome by end
                                                                          users

                      Applied to all administrative actions imposed       Use of thresholds to identify most onerous
                      by a piece of legislation, except for exceptional   actions
                      (and undefined) marginal costs

                      Periodic review (4-5 years)                         Review and timeline for ex ante assessment
                                                                          defined on a case-by-case basis

                                                                          Periodicity of cumulative/sectoral ex post
                                                                          assessments yet to be defined.
                                                       – 27 –



                    High level of accuracy sought mainly through     Use of range for administrative costs in ex ante
Expected level of   fieldwork and simulation                         impact assessments to avoid spurious accuracy,
accuracy and data                                                    with median figures used in summarising
                                                                     results
sources
                    Use of national registers and statistics         Application of the proportionality principle to
                                                                     establish optimal accuracy levels.

                                                                     Use of a sample of member states and
                                                                     extrapolation to EU level

                                                                     Estimates base on EU statistics, standardised
                                                                     ratios and data provided by the sampled
                                                                     member states.

                    Decision tree in 7 steps                         Decision tree in 4 steps
Classification of
regulatory origin

                    Each public entity assesses its regulatory       Application of the subsidiarity principle:
Division of         proposals and sectoral legislation (with         Commission assesses ‘upper bound costs’ and
responsibility      involvement of consultants) under the            extrapolate national data to EU level
                    supervision of the IPAL and monitoring by
                    Actal
                                                                     (The sample of) member states must provide
                                                                     data on their implementation of EU legislation.

                                                                     Need for interoperable databases

                                                                     Need to streamline communication between
                                                                     Commission services and responsible national
                                                                     authorities.

                    Assumptions are clarified at the outset.         Inclusion of caveats clearly drawing attention
Methodological                                                       to the underlying assumptions and their effect
caveats                                                              on the accuracy of the assessment.

                    3-5 dedicated and approx €300,000 per ministry   14-40 hours of work over 4-24 weeks per ex ante
Workload and cost                                                    assessment
                    Around 60 people involved in public
                    administrations (IPAL, Actal, ministries)        1,600 hours/week per year for the
                                                                     Commission’s central policy unit(s)
                    In 2002, overall cost for the baseline
                    measurement was approximately €3mn (done
                    by consultants)




As emerges from Table 8 above, the feasibility of developing an EU common
methodology for assessing administrative costs still depends on whether an efficient
and effective solution can be found to pending methodological, procedural and
organisational issues. The Commission identified areas for optimisation of the model in
its report on the pilot phase issued on October 21, 2005. These issues are presented in
the next section.

1.7.2 Pending issues after the pilot phase
As already mentioned in the previous sections, developing a SCM to be applied both ex
ante and ex post at EU level is a challenging task by all means. The EU SCM is now
operational and seems promising in many respects, but it is particularly important to
                                        – 28 –



make swift progress on priorities for optimisation. Such areas are currently identified
by the Commission as follows.

1. Database interoperability: to ensure the interoperability of national databases on
   administrative burden and access for the Commission.
2. Country distribution: identification of weighting systems for assessing EU-wide
   costs on the basis of limited national data (e.g. country distribution).
3. Accuracy: identification of the average margin of error of administrative cost
   assessments.
4. Standard ratios: identification of standard ratios for overheads, training costs and
   learning curves and for costs corresponding to normal business operation, among
   other things.
5. Thresholds: identification of specific threshold(s) below which quantification is not
   necessary (minimum thresholds for the application of the model).
6. Extension to citizens: possible adjustments of the model when assessing
   administrative costs put on citizens.
7. Guidance on borderline cases: possible difficulties to distinguish information
   obligations from the other regulatory costs and how to overcome them.
8. Standardisation of IOs and target groups: looking at possible shortcomings of the
   typologies of IOs and required actions used in the EU operational manual;
   examining the need for a typology of target groups.
9. Exchange of data: Organising optimal exchange of data between the Member States
   (including their regional authorities) and the Commission.
10. Target-setting: the issue of target-setting still needs to be addressed and agreed
    upon. Whether an overall target can be set at pan-European level for the reduction
    of administrative burdens imposed by legislation within a given timeframe is one
    of the issues that will have to be explored in the near future.
This Report will offer suggestions on these and other pending issues in Section 4
below.
                                        – 29 –




2 COUNTRY CASE STUDIES
In this section, we present the findings of four case studies carried out during the
months of August-October 2006. We analysed the main features of the model adopted
by the four member states that have completed so far the baseline measurement – i.e.
The Netherlands, Denmark, UK and the Czech Republic – in order to identify
similarities and differences between the variants of the SCM adopted, highlight the
potential for cross-country comparison, comment on the possible co-existence of these
models with an EU common methodology, and report the results reached in the
national measurement with specific emphasis on burdensome EU legislation.

2.1   The Netherlands
Since 2000 onwards, the Dutch government has intensified its efforts to reduce the
administrative burdens on businesses and citizens and, according to the advice of the
high level Slechte Committee, it decided to quantify burdens on businesses. The
government also set up the Dutch independent Advisory Board on Administrative
Burdens (ACTAL) by government decree (on May the 1st 2000).
Notwithstanding the efforts made by the government, the overall reduction was still
modest: in 2000 the total red tape reduction was estimated to be around €1 billion, i.e.
6-7% compared to the 1994 level. Meanwhile, the administrative burdens were
increasing as a result of new legislation; in particular, the economic situation became
more difficult for private businesses, which asked the government to reduce
burdensome obligations stemming from the regulation. Accordingly, in 2003 the Dutch
government re-launched the regulatory reform as one of its top political priorities. It
committed itself, in the coalition agreement that was the basis of the second
Balkenende Cabinet, to reduce red tape by a quarter compared to the baseline
measurement by the end of its term (May 2003-May 2007). This meant reducing more
than €4 billion of the €16.4 billion total administrative burdens estimated in the
Netherlands (at 1 January 2003). The task to coordinate the needed activities was laid
in the hands of the Ministry of Finance in close collaboration with the Ministry of
Economic Affairs. The Interministerial Project Unit for Administrative Burdens (IPAL)
was placed under the authority of the Minister of Finance. Since then, progress of the
reduction project is monitored via the budget cycle: the annual Budget Memorandum
and the Ministerial budgets (September), and the annual reports (May). This operation
requires the involvement and support of the entire Cabinet. All Ministers support this
approach and take responsibility for the realisation of their own plans.
Currently the Dutch government is preparing its final letter about the state of play of
the administrative burden operation for Parliament. The project is on schedule. About
half of the reductions are already implemented, whereas the rest will follow in 2006
and 2007. Originally the final letter was planned for spring 2007, at the end of the
Cabinet. However, the Dutch Cabinet resigned this summer, and elections will take
place in November 2006. The fight against red tape is expected to be a major issue also
in the new government’s agenda.
                                                        – 30 –



In 2003 the Cabinet developed a methodology to quantify administrative burdens –
called the Standard Cost Model – which is among the earliest and most thoroughly
applied systems to measure administrative burdens in European countries.34 In the
Netherlands this quantitative methodology has been developed to measure
administrative burdens stemming from both European/international and national
legislation by identifying the information obligations imposed by legislation.35 Burdens
are quantified in time spent to fulfil the requirements as well as in monetary terms and
are considered as costs imposed on businesses when complying with information
obligations stemming from the government regulation. The Standard Cost Model
works in three steps: 1) an in-depth analysis of the data transfer between a business
and the authority which are isolated and defined; 2) the determination of the time
involved in each “data transfer” and the level of the person performing it; 3) the
computation of the data to produce cost estimates.36 The Standard Cost Model was
conceived for both ex ante and ex post applications.

2.1.1 The Standard Cost Model
According to a step by step approach, the guide for classifying administrative burdens
according to national (and international) origin states the various steps to classify
information obligations (IOs):
•      preparing the survey to obtain an overview which indicates the legislative
       domains, the missing information required for classification in categories and an
       inventory of the policy officers and jurists responsible;
•      clarifying the survey to organise the knowledge transfer for classification of the
       legislation and regulations in categories;
•      classifying the information obligations into three categories according to the
       ‘decision tree’. Each ministry has classified the information obligations into three
       categories according to the ABC categorisation to determine the origins of
       administrative burdens37;
•      consolidating results of the classifications and analyse the focal points to
       summarise the results of classifying legislation.
According to the Dutch SCM manual (2003), the Netherlands have some standardised
information obligations which are selected on the basis of the measurement


34   From Red Tape to Smart Tape Administrative Simplification in OECD Countries, OECD, Paris, 2003, p. 44
35An information obligation is the passage in a law or regulation text that requires a business to provide or draw up
information, and make this available, i.e. a duty that the business cannot avoid without violating the law.
36   See From Red Tape to Smart Tape Administrative Simplification in OECD Countries, OECD Paris, 2003, p.45
37All Ministries have established the origins of information obligations (national /international). To support the
Ministries in classifying the administrative burdens according to their origin, the Dutch Inter-Ministerial Legislative
Burden Department (IPAL) has developed a guide. This guide contains a ‘decision tree’ with whom the information
obligations underpinning the administrative burdens can be broken down into three categories. See: Dutch Legislative
Burden Department (IPAL): Administrative burdens in an (inter)national perspective Guide for classifying administrative
burdens according to national (and international) origins, The Hague, August 2003.
                                                         – 31 –



experience with the help of consultants who carried out the measures: however, the list
of IOs is not exhaustive.

2.1.2 Baseline measurement
As already mentioned in Section 1, a baseline measurement is an ex post measurement
of the overall administrative costs that enterprises experience at a given point in time
in following a current set of rules. The Dutch program, including the baseline
measurement, officially started in 2003 and initially involved only private businesses
and some semi-private businesses. Furthermore, the Dutch Cabinet launched a pilot
project to tackle the intergovernmental costs among public authorities and to measure
burdens on the voluntary sector. Finally, as will be clarified in more detail below, the
Dutch government has launched a measurement of the administrative burdens
imposed by legislation on citizens. As a result, if compared with the EU common
methodology, the Dutch model has a very similar scope, but does not cover public
administrations.38
The SCM is suitable for both a limited and a full scale measurement covering all
legislation generating administrative costs.39 In particular, the Dutch approach
provides for a full scale baseline measurement for private businesses. To the contrary,
in measuring administrative burdens for citizens a Pareto distribution is assumed (20%
of the regulation causes 80% of the administrative burdens).40 The selection of the
burdensome legislation was made on the basis of a measurement of the number of
contact moments between citizens and the government.
A baseline measurement report is drafted per ministry. Each department measured the
administrative burdens which fall under its responsibility. In borderline cases, where
the same regulatory requirement can be attributed to more than one ministry or
department, generally the Dutch approach prefers to split it up, fifty-fifty. If this is not
satisfactory, departments have to reach an alternative agreement on a case-by-base
basis. The administrative costs are noted down per law. Each law is sometimes split up
in consideration of the sectors and the sizes of companies affected which determine the
needed segmentation41.
A business panel selected by the consultants is used to select businesses to be included
in the samples which are made per type of legislation under consideration. In case the
needed type of company is not present in the panel, the consultants choose for
interviews companies that are considered to be relevant.




38   See above, section 1.7 for a comparison between the Dutch model and the EU common methodology.
39The limited scale approach can be used to gain some technical knowledge and practical experience with the
methodology, before deciding whether to proceed or not at a full scale level.
40   According to the Pareto principle, only the most burdensome legislation is measured and extrapolated.
41   Segmentation is required when companies comply differently.
                                                 – 32 –



2.1.3 Methodology

2.1.3.1        Scope of measurement

As already mentioned, the baseline measurement covered businesses. In the SCM
Manual a definition is given of what businesses are:
             “The term businesses should be taken to mean every sector of the economy, with
             the exception of the public sections of public administration, government
             services and compulsory social insurances and education. However, the private
             sections of the above–mentions exceptions do constitute businesses. The basic
             criterion is the question of whether the organisation covers its own costs. If it
             does, it is a business” [The Standard Cost Model, 2004, p. 10]
To implement this definition sector codes from the national account of Statistics
Netherlands (In Dutch: Centraal Bureau voor de Statistiek, CBS) have been used.
Healthcare organisations and educational institutes can be subject to the baseline
measurement as long as these organisations fulfil the definition of businesses. This
definition implies that for instance compulsory education is excluded, but private
educational institutes are included.
Nevertheless the areas of criminal law, subsidies and public procurement and defence
are not covered by the measurement. Costs stemming by inspection are measured, but
not systematically, unlike what happens in the UK42; the measurement in this area
regards only the costs formulated in the legislation except for the provisions which the
inspection authorities could formulate according to the legislation. Moreover, criminal
law does not fall in the context of administrative cost exercise because this field is
strictly linked to the legal system. Finally, the subsidies and public procurement is
included later on and the defence area is considered not relevant for the measurement.
Apart from these areas, no other areas were in principle excluded from the
measurement: the Dutch measurement included all information obligations that result
from generally binding regulation. Table 9 shows the results of the baseline
measurement by ministry at 1 January 2003, and the ABC classification of the
administrative burdens for each policy domain (ministry).




42   See below, section 2.3.
                                                           – 33 –



Table 9 – Total Administrative Burden of the baseline measurement at 01-01-
     2003, by ministry according to the ABC classification*) (€ million)




Finally, the Dutch model is conceived to measure administrative costs, not just
administrative burdens. This means that it measures also obligations that would be
complied with even if the compulsory regulation would be removed. In addition,
also voluntary obligations were measured. This broad approach was chosen to
include all unnecessary red tape.

2.1.3.2      Costs and tariffs43

Administrative burdens are part of the total compliance costs. But not all compliance
costs are regarded as administrative burdens. The definition includes only a number of
categories of costs that are sufficiently concrete and objective/measurable to be useful
in terms of quantifying administrative burdens. When examining the size of
administrative burdens, the matter of whether a business views specific information
obligations as a burden in the subjective sense of being a nuisance ('irritation costs’) is
not important. What needs to be ascertained is whether the burden is an objective
burden in the sense of a ‘cost item’. Possible benefits of a regulation are not explicitly
considered in the measurement itself, although the relative merit of burdensome
regulation is taken into account when formulating cost reduction plans. Also lost
turnovers due to an information obligation are not included in the administrative
burdens.
Substantial one-off costs that a business must invest in order to comply with an IO
are quantified and spread over the depreciation period. Negligible one-off costs need
not be quantified, but it should be possible to obtain at least qualitative insights on
them. Costs resulting from trying to keep up with the frequently changing existing
legislation and regulations are considered to be administrative burdens. As regards ex
ante measurements, it is important to consider the costs to a business of keeping up
with new legislation and regulations. These costs are an administrative burden, but do
not need to be quantified in advance.

43   The Standard Cost Model A framework for defining and quantifying administrative burdens for businesses, International
working group on Administrative Burdens. August 2004: p. 14-16.
                                          – 34 –



Administrative costs are estimated on the assumption that legislation is complied
with for 100%, despite the fact that in practice, not all businesses comply (fully) with
all of the legislation. However, when there is sufficient evidence that not all businesses
comply with all of the legislation, the 100% compliance assumption is not applied.
A number of businesses register data for more purposes than just the obligations
arising from legislation and regulations. The total costs of multi-purpose registrations
should be allocated to the legislation or regulation concerned as an administrative
burden. As far as demarcation issues are concerned, if there is an overlap between two
areas of legislation (the same information is used by two different parties), the costs of
the reporting are shared on a 50%-50% basis between the two legislative areas,
unless the involved parties arrive at another solution on the basis of measurements.
In calculating the administrative burden, the costs of an individual administrative
action (P) are determined by multiplying the time to fulfil this administrative action
with a tariff. There are two types of tariffs: internal and external. The internal tariff is
the hourly rate of the person(s) in the business who deals with the IO. The external
tariff is the hourly rate of the person(s) outside the organisation who deal with the
information obligation. This can include contracting out and the hourly rate of the
accountant, for example. These costs are usually offset at a commercial rate on the basis
of wage costs. The internal tariff is made up of the following components:

•      Gross wage + Wage costs
•      Material and overhead costs

Material costs are taken to mean the costs of all materials purchased in order to satisfy
the administrative obligations. This can include the costs of accommodation, materials
needed for a registration system, detailed drawings and the like. Overhead costs are all
the costs associated with the use of office materials, depreciation of desks, computers,
facilities for ancillary departments, etc. In general and where relevant, these costs are
estimated using a mark-up percentage on the internal tariff of the gross wage costs. In
the Netherlands the overhead tariff is not formally standardised. At the start of the
measurement an overhead percentage of 25% of the gross wage was used. Now
sometimes higher percentages are used.
When no information is available to calculate a tariff in an ex ante exercise, it is
possible to make use of standardised tariffs. These standardised internal tariffs are as
follows:44
                      low level job          € 30/hour
                      middle level job       € 45/hour
                      high level job         € 60/hour




44   Meten is weten, p. 31
                                           – 35 –



The external standardised tariff is € 150/hour. These tariffs include wage costs and
material and overhead costs.

2.1.3.3       Procedural Issues

Central in the Dutch organisational structure are the Minister of Finance and the IPAL.
The latter was in charge of coordinating the measurement process and developing a
common methodology, i.e. the Standard Cost Model Manual.45 This manual needs to
be applied by all the ministries in measuring the administrative burdens and
measuring the effects of the reduction policies.
The authority of IPAL as the coordinating department rests on the position of the
Minister of Finance. In the Dutch coalition cabinets the Minister of Finance has always
held a central and powerful position. Strong political input was provided by the
cabinet Balkenende, under which the issue of reducing administrative burdens ranked
very high in the political agenda.
On the other hand, the measurement and reduction of administrative burdens for
citizens is coordinated by the Minister of Government Reform and Kingdom Relations.
This ministry developed the methodology for measuring AB on citizens,46 and
safeguards its uniform application amongst ministries. The ‘citizens manual’ shares
most of the starting points with the Standard Cost Model Manual; however, the
administrative burdens for citizens are expressed only in hours, with no segmentation
based on occupational groups, and this results in the application of a uniform cost per
hour when transforming time-based measures into actual administrative costs.

2.1.3.4       Identifying Information obligations

No compulsory standardised list of information obligations is defined in the SCM
Manual. In the process of measuring AB some standardization took place.
Information obligations were defined on the basis of the measurement experience that
IPAL gathered before 2003. Consultants assisted in carrying out the measurement. To
classify information obligations as EU and non EU related, the ABC methodology was
applied. This methodology was laid down in a separate manual.47
When an information obligation can be contributed to more than one ministry or
department the obligation was divided amongst the ministries or departments in equal
terms. When this was not satisfying the ministries can make other arrangements by
themselves.
The baseline measurement was carried and reported by each ministry, because the
ministers are responsible for the reduction policy of their own ministry. Per ministry
the administrative burden is recorded per law. An information obligation sometimes


45   Quote
46   Quote
47   (Reference)
                                          – 36 –



must be split up to be able to diversify the administrative burden according to sector or
to firm size. It was recognised in the baseline measurement that segmentation is
needed whenever the same IO can exert a different impact on different sectors and
different businesses.
This classification of administrative burdens by ministry is used in reporting to the
Parliament and other stakeholders. But in communication with important stakeholders
like industry associations, the sector or target group was used as a unit of reporting,
because this reflects the business perspective better than a ministry-wide view.

2.1.3.5   Selecting businesses

The businesses were selected on the basis of information from business panels
organised by the consultants. Samples of types of businesses were made per type of
legislation under surveillance. If a type of business was not present in the panel, the
consultants directly approached businesses belonging to this type for interviews.

2.1.3.6   Data sources and collection methods

Different data sources from the selected business were used. The Dutch zero-based
measurement is a combination of several instruments for collecting data. These
instruments are: desk research, discussions with representatives of relevant business
sectors and field research. Different phases can be distinguished in the establishing the
information obligation:
•   Desk research was used to find the IOs that arise from a given regulation. The
    purpose was to reach a preliminary judgement on how to separate IOs from
    ordinary business administration and making a first proposal for the blue-print of
    administrative activities.
•   Discussion with representatives of relevant business sectors were organised to verify
    and create support for the list of DRs (these are units of administrative activities
    necessary to fulfil an IO) and some expert interviews to check the blue-print of
    administrative activities;
•   Field research (face-to-face interviews) were used to collect cost parameters, like time
    parameters. These face-to-face interviews were addressed mostly at bookkeepers,
    controllers and accountants;
•   Desk research was undertaken for collecting parameters to extrapolate the results of
    the measurement to a national level. These parameters are, amongst others, the
    number of entities (enterprises, employees, transactions, etc.) in the relevant field
    and the enforcing institutes like tax authorities, social insurance agencies, bureaus
    of statistics, chambers of commerce.
•   The “normal face-to-face interviews” and/or the “stop watch method” refer to the field
    research to collect time parameters only. During the experimental phase (1992-
    1994) of the SCM, then called Mistral®, several methods of collecting time
    parameters bottom-up were tested, e.g. multi-moment, registration by the
                                                       – 37 –



       respondents themselves, stopwatch and time registration by computer.48 At the
       same time several top-down instruments to collect time parameters were tested,
       such as mail questionnaires, structured face-to-face interviews by trained and
       qualified researchers and structured face-to-face interviews by external
       (outsourcing) bookkeepers and accountants. These instruments were
       evaluated/tested on three criteria: accurateness of the time measurement, the
       content of the results (more or less distortion by perception, possibilities to detail)
       and cost-effectiveness.
In 1994 these instruments were tested in a laboratorial setting involving some 40
respondents from affected businesses. The major result of these laboratorial experiment
was that the results of the bottom-up approach were more accurate then those of the
top-down approach. In detail:
•      the variation of time parameters resulting from a top-down approach were larger
       then in case of a bottom-up approach;
•      After a correction for outliers (4 highest and 4 lowest results) the time
       measurements of the bottom-up approach appeared much more stable then those
       resulting from the top-down approach;
•      The coefficients of variation of the bottom-up approach were smaller then those of
       the top-down approach;
•      After correction for outliers, the variation coefficients resulting from the bottom-up
       approach were much more stable then those resulting from the top-down
       approach;
•      The bottom-up approach of time parameters after the bottom-up approach showed
       a better fit to the Lorenz curve then was the case for the top-down approach.
During face-to-face interviews most respondents think in categories of one minute or
more. As a result, the stopwatch is especially recommended when the numbers of
entities are in the order of millions or higher and the administrative tasks to be
measured are expected to exhibit a high frequency and to take less than 1 minute to
accomplish. However, in the Netherlands this happened only three times in a period of
10 years. In almost all cases the face-to-face interview appears to be good enough for
accurate time measurements.
Apart from face-to-face interviews, the main data collection methods used were
telephone interviews, focus groups, expert assessments and business panels. Other
data collection methods were used only occasionally - including focus groups and
consultancy studies.




48   EIM Business Policy Research was involved in the experimental phase
                                         – 38 –



2.1.3.7   The ‘normally efficient business’

A goal of the government is to measure administrative burdens that occur because of
legal prescriptions, not because of inefficient operations taking place within a given
firm. Accordingly, when measuring the time needed to perform a given activity, the
performance of a normally efficient firm is taken into account: this does not mean
considering the most efficient firm, but a firm that can be regarded as representative
for the population of firms under study.
A frequently used approach is the determination of a “typical firm”. In this approach
the law is the starting point. The standard costs businesses face to comply with the IOs
laid down in the law are calculated. These are not to be taken as costs from a business
economics point of view – e.g., opportunity costs or inefficiency costs. The SCM does
not reckon benefits at firm level as a result of complying with the obligation (e.g. lower
tax payments or subsidies) and marginal costs: it only quantifies the costs that would
disappear if the legal prescription was repealed. As such, the model employs a public
administration point of view: on the basis of the relevant information requirements, the
time spent by a typical firm in complying with the obligation is measured.
The concept of typical firm deserves some further explanation. From the business
economics perspective there are no typical firms. The construction of this artefact is
however necessary in order to measure administrative burden from the public
administration perspective. In case administrative burdens of a specific law have to be
measured, the respondents (i.e. businesses or their representatives) are selected. The
Dutch SCM does not use random samples to select respondents for time
measurements. The selection of typical firms depends primarily on the legal
specifications of the law under surveillance.
The total population of enterprises affected by a law is segmented into a limited
number of groups of typical firms, according to the legal specifications in that law.
During the selection process of enterprises for in-depth interviews, these different
segments are taken into account. All different (but more or less common) types are
selected in a substantial rather than a representative manner. Corrections for over- or
under-representativeness are made at a later stage (re-weighing with the correct
population figures). The experts validate the rationale behind the selection of typical
firms. Consequently, in-depth interviews are held with a number of enterprises per
group.
The determination of typical firms can be illustrated by an example. The Annual
Account Act obliges enterprises to prepare an Annual Account. The type of account
(simple or long) enterprises have to prepare depends on enterprise characteristics as
defined in the Act: number of employees and total revenues. The number of
enterprises to be interviewed was selected as follows. First, desk research showed that
40% of the enterprises have the obligation to file a simple account sheet, whereas the
remaining 60% has to file a long sheet. Secondly, for measuring the compliance cost it
was important to estimate the percentage of enterprises that hired an external party to
prepare the annual account; it emerged that 75% of enterprises outsource this
                                                        – 39 –



obligation to an accountant or an administration office. On the basis of these two
criteria, four types of typical firms could be distinguished, and the sample for
interviews could be constructed as follows (Table 10 presents the number of
enterprises per category).


                        Table 10 - Example – selection of sample firms




In this example, 15 interviews would provide information regarding enterprises that
outsource the obligation, 12 interviews would provide information regarding the
“long” account, etc. Businesses were segmented when necessary according to firm size,
industry sector and the outsourcing/in-house provision of the requirement.
Segmentation is only necessary when the way to comply with the IO is assumed to
differ in the various segments.


2.1.3.8     Standardisation of measurements

In the Dutch baseline measurement of administrative burdens on businesses, no
standardisation of time per data requirement of an information obligation took
place. In the measurement of the administrative burdens on citizens the time per
activity has been standardised. The tariff attached to an hour spent was not
standardised: however, in the next baseline measurement to be carried out in 2007, 3
rates will be applied for the internal tariff: a high tariff, a middle tariff and a low
tariff.49



2.1.3.9     Who does what

In the Netherlands the Ministries are responsible for their own baseline measurement,
i.e. each Ministry organises its own baseline measurement with a consultant of his own
choice. All ministries are obligated to follow the SCM Manual.
A board is always involved in the process of a measurement and IPAL will always be
represented. Generally, the parties involved in most of the steps of the measurement


49The internal tariff is the hourly rate of the person(s) in the business who deal with the IO. The external tariff is an
hourly rate of the person(s) outside the organisation for which the AB is calculated. See SCM Manual, 2004, p. 19.
                                                   – 40 –



process are: the responsible ministry, the coordinating unit, the consultant and
businesses (and/or business organization). See also Table 11 below.


     Table 11 – Who does what in the 15 steps of the SCM, The Netherlands




                                                                                                           Consultant(s)
                                                                                            Coordinating
                                                                            Ministry(ies)




                                                                                                                           businesses
                                                                                              Central




                                                                                                                             Other/
   Phase


           Step




                                                                                               Unit
                                        Description



                  Identification of business-related regulation to be
Phase 0    0                                                                X                              X
                  included in the analysis
                  Identification of IOs/DRs/administrative activities and
           1                                                                X                              X
                  classification by origin
           2      Identification and demarcation of related regulation      X                              X
           3      Classification of information obligations by type         X                              X
           4      Identification of relevant business segments              X                              X                 X
Phase 1
           5      Identification of population, rate and frequency          X                              X
           6      Business interviews v. expert assessment                  X                              X                 X
           7      Identification of relevant cost parameters                X                              X                 X
           8      Preparation of interview guide
           9      Expert review of steps 1-8                                X                   X          X                 X
           10     Selection of normally efficient business                  X                              X                 X
           11     Business interviews                                                                      X                 X
Phase 2           Completion and standardisation for each segment by
           12                                                               X                              X                 X
                  activity
           13     Expert review of steps 10-12                              X                   X          X                 X
           14     Extrapolation of validated data to national level         X                   X          X                 X
Phase 3
           15     Reporting and transfer to database                        X                   X



2.1.3.10 External consultants and budget

More than one consultant was involved (4-5). These were experienced consultants in
the field, which were selected by a tender procedure. Each department could select the
consultant of its choice. All consultants used the SCM Manual drafted by IPAL. The
full baseline measurement took about 6 months, although some areas were already
measured when the operation commenced.
As regards public administrations, two central departments are mostly involved in the
process, ACTAL and IPAL. The actual measurement of the AB is decentralised.
Normally 3-5 persons per ministry are involved. Furthermore, different persons per
ministry work on the same measurement. So the costs per measurement differ from
Ministry to Ministry. The actual figure depends on several factors:
                                                           – 41 –



•       Amount of legislation. Ministries differ in size and there are also differences in the
        amount of legislation they are responsible for. A ministry that has few rules with
        administrative burden has relatively low measurement costs.
•       Complexity of legislation. The complexity of the legislation affects the way data has
        to be collected. More complex legislation can require more desk research and can
        require more interviews in order to get a representative outcome.
•       Target group of legislation. The target group of legislation can for example be one
        or several sectors of industry or certain groups of enterprises (SMEs). In the context
        of measuring administrative burden this can imply that the groups carry out their
        information obligations differently. For example, situations in which small firms
        fulfil an obligation much more efficiently than large firms. If this is a substantial
        difference this is an aspect that should be taken into account to get a representative
        outcome that reflects typical firms in practice.
In general in can be said that the costs per legislative area in the Netherlands varied
from €100,000 to €300,000. The total cost of measurement of administrative burden for
Dutch enterprises was approximately € 2.5–3 million euros for all nine participating
ministries together. These are one-off costs, not annual costs. After finishing the
baseline measurements, only changes (due to new legislation and to reduction plans)
have to be measured.

2.1.3.11 Administrative burdens for citizens50

In its Outline Agreement, the former Cabinet has proposed that the administrative
burden for citizens should be reduced. This Cabinet objective forms part of the
'Modernizing Government’ action programme51 as formulated by the Minister of the
Interior and Kingdom Relations and the Minister for Government Reform and
Kingdom Relations. The target is that by 2007 the administrative burden on citizens
(AB Citizen) should have been reduced by 25% compared to the base line
measurement with the reference date 31 December 2002.52
The Ministry of the Interior and Kingdom Relations is responsible for coordinating the
activities carried out by the various ministries to achieve the AB Citizen target.53
The cooperation between ministries has been given tangible form in the
interdepartmental project group ICRAL, which includes representatives from all
ministries whose regulations give rise to ABs Citizen. Additionally The Advisory
Board on Administrative Burdens (ACTAL) has been given the task of advising on the
administrative burden for citizens.


50This section is based on “Standard Cost Model. Administrative burden for citizens.” Ministry of the Interior and
Kingdom Relations. September 2004.
51   Parliamentary publication: TK, 2003 – 2004, 29362, n. 17.
52   As stated in the memorandum from the Ministry of BZK to the House of Representatives.
53As adopted by Cabinet in the Administrative Burden for Citizens Reduction Action Plan (Plan van Aanpak
Administratieve Lastenreductie Burger).
                                            – 42 –



Administrative Burden for Citizens are defined as those costs that are incurred by
citizens in complying with information obligations ensuing from government
regulations. This includes both compliance with obligations and exercise of rights.
Costs that do not qualify as AB Citizen are:
•   The costs that can arise owing to the, possibly poor, quality of the service delivered
    by the government. For instance: long turnaround times and poor accessibility
•   The perception of citizens, for example that the government is delivering an
    inefficient service or has too little focus on the client.
•   The costs incurred by the government in dealing with requests or objections and
    gathering and processing information supplied by citizens.
•   The non-compulsory contacts between citizens and government, for example
    contacts not based on a statutory information obligation.
AB Citizen relate to the time spent, expressed in hours, and to out-of-pocket
expenses, in euros, incurred by the citizen. Measurement of the AB citizen is based on
identification of actions carried out by citizens to comply with information obligations
originating from a certain regulation. The time spent performing these actions and the
costs incurred in doing so together constitute the AB Citizen of the IO in question. An
IO is a statutory duty to supply information. Supplying information includes the
gathering, processing, recording, keeping and making available of information.
Citizens can be individual citizens and organised citizens. Individual citizens are
persons of all ages. Organised citizens are not-for-profit organisations and associations
whose funds largely come from voluntary contributions (gifts and donations) from
households and income from assets. As a result, the Dutch measurement of AB
citizens also covers non-profit organisations such as charities, which in other
countries are measured together with administrative burdens for private (for profit)
businesses.
Each information obligation applies to one or more target groups. The Dutch
Parliament has stipulated a number of target groups for which the AB Citizen must be
quantified. These are:
•   General citizens This target group comprises citizens who are aged 18 or over.
•   The elderly These are citizens who were aged 65 or over.
•   Benefit claimants This target group consists of citizens who are entitled to benefit
    specific regulations.
•   Chronically ill and disabled persons.
•   Organised citizens This target group contains civil-society organisations.
The measurements carried out by ministries and other government agencies must
provide an insight into the AB for the above five target groups.
Regulations are adopted by various government bodies. In the context of the definition
of AB Citizen, the term ‘government’ is understood to include: community
                                              – 43 –



organisations (EU), government ministries, provincial authorities, local authorities and
water Authorities, Autonomous administrative authorities (In Dutch: ZBO).
In order to obtain clarity as to whether the AB Citizen originates from
EU/international or from national regulation also here the A/B/C classification is
used. Furthermore, in the baseline measurement the total AB Citizen is distinguished
based on the degree of policy discretion enjoyed by different levels of government.
Four categories are distinguished:
•    Category I. Central government regulations.
•    Category II. Shared government without policy discretion. The regulations are
     drawn up directly by central government. The administrative authority has an
     exclusively implementing task and therefore no policy discretion
•    Category III. Shared government with policy discretion. The regulations are drawn
     up by central government, but the administrative authority has the freedom to set
     additional rules and is free in the method of implementation.
•    Category IV. Autonomous regulations. An administrative authority, which
     determines its own policy as well as the associated rules and information
     obligations, draws up the regulations.
The AB Citizen from categories I and II is attributed to ministries. The AB Citizen from
categories III and IV is attributed to administrative authorities.54
The measurement of AB Citizen is broadly comparable with the calculation used for
AB Business. However differences exist. The main difference is that the AB Citizen is
expressed in two dimensions: time (hours) and costs (euros). The total time and costs
are determined by multiplying the time and costs (T and K) that have to be expended
in complying with an information obligation for one citizen by the frequency of
compliance (Q). Time spent complying with an information obligation includes: travel
time to and from a government organisation, time spent completing name and address
details, time spent looking for and entering a social security number, time spent asking
for proof of registration with a municipality or time spent applying for forms via the
Internet.
The costs included in the AB Citizen are the money actually spent to comply with an
IO. Opportunity costs (‘What I could otherwise have done with my time/money’) are
by definition not included in AB Citizen.
It is not important, when identifying the extent of the AB Citizen, whether a given
information obligation is perceived as a burden by the citizen in the subjective
sense of irritation. The AB must therefore be determined objectively as an average
investment in time and costs for a citizen. Possible benefits experienced by citizens due




54Regulations implemented by autonomous administrative authorities are attributed to the ministries.
Regulations implemented by other organisations are attributed to the shared government bodies.
                                          – 44 –



to an information obligation are left out of consideration. This also applies for rights
that are exercised.
Getting familiar with legislation and regulations is also part of the compliance with an
IO. For example, the time taken to learn about the fiscal rules for completing a tax
return is seen as part of the time spent on completing the return and therefore as an
administrative burden for citizens. With the aid of input from citizens, an average time
investment is determined for this.
Measuring AB Citizen is concerned with the overall costs of meeting the information
obligations. It thus makes no difference whether the citizen also uses the
information provided or the action carried out for their own purposes (mixed
function). What is important is that the information obligations are laid down in
legislation and regulations.
Where there are two legislative domains requiring the same information from the
citizen, the costs are attributed to each domain on a 50-50 basis, unless a different
arrangement is agreed between the two domains.
Time and cost parameters are determined mostly through citizen panels, possibly
supplemented by interviews. When preparing and carrying out citizen panels, specific
attention is devoted to the representativeness of the data gathered. After gathering the
data from a citizen panel, the data is checked with the bodies responsible for
implementing the regulation in question. This step in the procedure also enables
possible reduction proposals to be identified. However, as often only limited data are
available, the calculation of the AB Citizen ensuing from proposed regulations is
generally based on estimates and forecasts by experts. When implementing the
findings, therefore, allowance will always have to be made for the assumptions and
principles used.

2.1.4 Targets
An overall reduction target was set before starting the measurement exercise during
the formation of the former Cabinet (Balkenende II). The political decision-making
process to form the government after the elections of 2003 resulted in the choice for a
25% reduction target, which was considered politically feasible and taken up in the
Coalition Agreement of the government. As a result, the target was mainly set through
a political decision.
The target was expressed as a percentage of the baseline measurement of the
administrative burdens for businesses as of 31 December 2002. These were estimated to
reach €16.4 billion, i.e. approximately 3.6% of Dutch GDP. The 25% reduction target
was then 25% of €16.4, i.e. €4.1 billion. As a result, at the end of the Cabinet mandate in
2007 the administrative burdens for businesses should be € 4.1 billion lower compared
to the level in 2002.
                                                      – 45 –



It must also be specified that the reduction target is a ‘net’ target: new administrative
burdens imposed on businesses in the period 2003–2007 will be included in the total
amount of administrative burdens to be reduced.
Subsequently, the target was differentiated per Ministry: some ministries have a target
of 15%; others have a target of 30%. But on average and overall the target is 25%.
The projects were identified on the basis of information from ministerial committees,
information from an ad hoc website (meldpunt AL), the project model companies,
suggestions from the Parliament and information of a specific committee (Commissie
Stevens).55

2.1.5 Results

Table 12 below summarises the results of the reduction operation as they were
reported by a letter of 14 April 2006 from the Cabinet to the Second Chamber of the
Staten-Generaal.56 Net reductions are reported. At the moment the letter was sent to
the Second Chamber, administrative burdens had been reduced by €1.9 billion. The
reduction involved approximately 100 regulations. At that moment, there were still 70
regulations awaiting for measures to reduce the corresponding administrative costs.
These further measures are expected to lead to a further net reduction of € 2.9 billion.
(Pareto distribution!) Remarkable is that by the end of 2005 the cumulative net
reduction of the Ministry of VWS was negative.
The Cabinet concluded that in the budget year 2005 the reduction effort had not met
the target. However, it is expected that in 2006 and 2007 the target will eventually be
met.




55   [TK 29515, 135 bijlage De ondernemer Centraal]
56   [TK 2005-2006, 29515, 135]
                                                    – 46 –



      Table 12 – Realised net reduction and prognoses by Ministry (€ million)*)




These results are in line with one of the main conclusions of the report of the
Netherlands Court of Audit.57 The Court of Audit analysed 24 government measures,
which included 20 measures that were taken in 2003-2004 to reduce the administrative
burden and 4 new regulations that resulted in increased administrative burden.58 For
the latter, the Cabinet took compensating measures. The Court also studied the effects
that the reduction policy has had so far in the businesses community.
Importantly, the Court of Audit analysed also the methodology applied to measure
administrative burdens, and concluded that the Cabinet has correctly applied the
methodology set out in the SCM. The Cabinet is expected to comply with the 25%
reduction target. One main criticisms expressed by the Court of Audit, however, is that
the effects of the reduction policy on businesses are less evident than could be inferred
from governmental reports.

2.1.6 Most burdensome EU legislation
The results of the Dutch baseline measurement are presented below, in Table 13. We
show the results in descending order according to burdens in Category A and,
secondarily, in Category B obligations. As emerges from the table, in the Netherlands
the areas (domains) most affected by EU/international legislation are health
protection, private law and fiscal law. As international (non-EU) legislation is
estimated by IPAL to account for less than 10% of total burdens in Category A, it can
be fairly stated that administrative burdens in these sectors are mostly originated by



57   [TK 2005-2006, 30605, 2]
58Which included, for example, measures aimed at simplifying commuting regulations and at introducing digitial car
registration certificates.
                                        – 47 –



EU legislation. Other sectors that are significantly affected by Category A obligations
are working conditions legislation, pricing laws, health care legislation, financial
markets and agriculture.
Also as regards Category B, IPAL estimates that non-EU legislation only accounts for a
minor share of total burdens – i.e. less than 10%. Policy domains that are most affected
by Category B obligations generated by EU legislation are fiscal law, private law,
financial markets legislation, spatial planning and environmental licenses, agriculture
and legislation on working conditions.
                                   – 48 –



Table 13 – Overview of results by department, domain and origin (€ million)*)




Source: IPAL
                                          – 49 –



2.1.7 Conclusion

The Dutch model to reduce administrative burdens can be considered as a success
story, especially since the political target set will be eventually met within the specified
deadline. As already mentioned, this target is a 25% lower administrative burden in
2007 compared to the level of administrative burdens at 31-12-2002. This level of
administrative burdens has been measured by applying the Standard Cost Model. The
reduction policy and the success of this policy must therefore be regarded within the
context of the Standard Cost Model to measure administrative burdens.
However, it must be observed that the implementation of the SCM was only one of the
reasons for the success of the Dutch policy. Of utmost importance was also the political
decision to set a 25% reduction target. Each of the nine ministries involved were called
to comply with a set target. In principle, no distinction was made as regards the nature
of the regulations: however some ministries could prove they already had reduced the
administrative burdens of their regulations. These ministries were allowed to comply
with a lower target. This implied a higher target for other ministries, because the
overall target was kept at a 25% reduction of total administrative burdens. This fairly
simple reduction target was laid down in the coalition agreement that formed the basis
of the second Cabinet Balkenende. This made every minister responsible for its
reduction policy.
Another important feature of the Dutch system is the governance structure that was
put in place to achieve the set targets. The appointment of the Minister of Finance as
the body in charge of meeting the Cabinet objective, in close collaboration with the
Ministry of Economic Affairs, and the creation of a central coordinating unit (IPAL)
under the authority of the minister of Finance allowed for constant monitoring of the
measurement process via the budget cycle: the annual Budget Memorandum, the
Ministerial budgets (September), and the annual reports (May).
In addition, the role of Actal, the independent advisory board on administrative
burdens established in 2000, is also very important. Actal advises the Dutch
government on red tape reduction issues, and acts as a watchdog and facilitator of the
reduction policy. Before every new law is sent to the Council of Ministers for Cabinet
approval, it needs to pass muster at Actal, which scrutinises the enclosed measurement
of the administrative burden stemming from the law.
On a more general note, it must be borne in mind that the measurement methodology
is conceived to make a reduction policy possible. Accordingly, the underlying
assumption that the administrative burden can be measured on the basis of the
integrated cost of the hours spent seems suited to the purpose. Moreover, the
measurement yields point estimates, which do not account for the observed variation
in the time spent to comply with the IO/DRs. These features of the SCM make it
difficult to use the measurement outside the context of a reduction policy. The Dutch
Court of Audit implicitly criticised this starting point with his remark that businesses
do not fully perceive the reduction. The reason for this is that the rules that are being
scrutinised are often less onerous in practice than the government presumes, and
                                          – 50 –



businesses perform certain administrative tasks also for other purposes, or would still
have to provide the information concerned to other parties, apart from central
government.59
Moreover, the Dutch measurement has suffered from the problem of how to account
for one-off costs borne by businesses.60 Currently, these costs are not fully integrated in
the model: however, when sending documents to the Council of Ministers departments
are obliged to provide a measurement of administrative burdens and also to indicate
and measure the one-off costs involved. As a result, one-off costs are somehow taken
into account, although they are not considered when setting the reduction target for
each department.
Once these caveats have been taken into account, the overall conclusion that can be
drawn is that – within the limits set by the SCM and compared to the politically
defined targets – the Dutch reduction policy is being successful.




59   [Reference] –
60   [TK 29515, 135, p. 5]
                                                      – 51 –




2.2 Denmark
In August 2004 Denmark started a full-scale SCM measurement of the administrative
burdens for businesses. The measurement is part of the Danish Growth Strategy and
was expected to be completed in October 2005; however, its completion was reached
only in March 2006.61 In total, 15 ministries were included in the measurement. The
timetable was set to measure initially these ministries which were expected to produce
the largest burdens, while ministries imposing smaller burdens on businesses were
measured at a later stage.
The measurement will be updated every year with the administrative consequences of
new laws and executive orders, in order to achieve the target of reducing the overall
administrative burden up to 25% in 2010 as required by the Danish Growth Strategy.
Businesses should transmit resources from information obligations to innovation and
product development. This strategy should enable enterprises to create growth and
employment. To make the reduction process transparent, the government decided that
every year the amount of administrative burdens which is reduced by each ministry
will be reported to the public until the target is reached in 2010. The measurement
exercise is also debated in the Danish Parliament, although the Parliament’s interest
seems to lie more in the thematic framework of better regulation than in details of the
measurement results. Nevertheless, the publication of the results put pressure on the
ministries which are competing in reaching the results early. If ministries lie behind
their targets or even increase the burden, the public – but also the prime minister or the
minister of finance – can also react.

2.2.1 Methodology

2.2.1.1       Definitions

In their application of the Standard Cost Model Denmark used the following
definitions:
•      Administrative costs are the costs regarding the administrative activities that
       businesses have to carry out in order to comply with the information obligations
       that are imposed through official regulations.62
•      Administrative burdens are that part of the administrative costs that the
       businesses sustain simply because it is a requirement from officialdom.63
•      An information obligation (IO) is the passage in a law or regulation text that
       requires a business to provide or draw up information, and make this available, i.e.




61   „The Danish Growth Strategy“, August 2002, published by the Danish government
62   See Manual for conducting Standard Cost Model measurements, 8
63   See Manual, 9
                                                      – 52 –



       a duty that the business cannot avoid without entering into a position of opposition
       to the law.64
•      Data requirements65: Each information obligation consists of a range of different
       information that the businesses shall provide in order to be able to comply with the
       IO. These are called “data requirements”.66
•      Cost parameters are the expense variables that are associated with the individual
       administrative activities. The included cost parameters are differentiated in internal
       cost parameters (time, hourly rate, overhead), external cost parameters (time,
       hourly rate) and acquisitions.67
•      Private businesses are understood to mean units (physical persons, companies and
       other legal entities), that produce and/or supply goods/services under market
       conditions with the objective of generating profit for the owners.68
•      Normally efficient business: This is understood to mean businesses within the
       target group that handle their administrative tasks in a normal manner, neither
       better nor worse than may be reasonably expected.69

2.2.1.2       ABC-categorisation

According to the ABC-categorisation:
Category A Data requirements that are exclusively and completely a consequence of
           EU rules and other international obligations. The international rules
           describe which information businesses have to produce.
Category B Data requirements that are a consequence of EU rules and other
           international obligations. The purpose will be formulated in the
           international rules, while implementation (including formulation of the
           specific data requirements) will be left to the member states. The
           international rules do not describe which information businesses have to
           produce.
Category C Data requirements that are exclusively a consequence of rules formulated
           at national level.
The Standard Cost Model was used to show the origin of the administrative burdens.
The hired consultancy firms70 did the breakdown of legislation into information
obligations and data requirements and submitted it to the responsible ministry. The



64   See Manual, 10
65The Danish Manual uses the term "messages" instead of "data requirements".This originally used denomination was
replaced by "DR". For better understanding and uniformity this report only uses the term "data requirements".
66   See Manual, 10
67   See Manual, 12
68   See Manual, 15
69   See Manual, 12
70Denmark hired three consultancy firms to do the baseline measurement. Each consultancy firm had a specific contract
for specific areas / laws. At the moment, there is only one consultancy firm (Ramboll) to work on further
measurements. This firm is / was also involved in the measurements of other countries.
                                          – 53 –



ministry validated the list of IOs to ensure its completeness and then proceeded to
classify the data requirements to the ABC-classification, to clarify whether the burdens
stem from Danish regulation, EU or any other international legislation before
identifying any reduction targets. To distinguish between EU-legislation and
international rules the categories A and B have been further subdivided into:
•   Category A/B-EU-Directive
•   Category A/B-EU-Regulation
•   Category A/B-International
The classification is not only useful to draw a picture on the actual origin of
administrative burdens, but also allows the identification of ministries that can exert
greater impact on the reduction of administrative burdens. Ministries with high
administrative burdens in the categories A and B are not able to reduce the burden
directly, but in category C ministries could simplify national rules and so it is easier to
fulfil reduction targets. The Danish manual also mentions a longer-term purpose of this
classification, i.e. to identify the most burdensome EU directives as a basis for
proposing changes at EU level. As will be explained in more detail below, the Danish
measurement made it possible to calculate the burden of specific EU-directives.

2.2.1.3   Information obligations, data requirements and administrative activities

As already mentioned, in Denmark IOs were subdivided into data requirements. The
aim is the development of a standard cost catalogue of various types of DRs. The DRs
are classified into two types of categories, “data requirements – process” and “data
requirements – content”. The first category is subdivided into three categories that
describe the process of complying with the DR (e.g. manual process, partially
automated process, predominantly automated process). Figure 6 shows a decision tree
how to classify DRs based on the process of complying with the DR in the business.
                                                – 54 –



      Figure 6 – Decision tree for classifying data requirements - process


                  One-off or situation -
                  One-off or situation -
                     related DRs –             YES
                     related DRs –
               information constructed
                                                              Manual process
                                                              Manual process
                information constructed
                       each time
                        each time



                            NO


               information is generated
                information is generated                       Predominantly
                                               YES             Predominantly
                by means of systematic
                 by means of systematic
                                                                 automated
                                                                 automated
                    processes in the
                    processes in the
                       business                                   process
                                                                  process
                        business


                            NO



                Some of the information
                Some of the information        YES                Partially
                                                                  Partially
              is generated by means of
               is generated by means of                          automated
                                                                 automated
                 systematic processes
                 systematic processes                             process
                                                                  process




                   Source: Manual for conducting Standard Cost Model measurements, 28




The second category is subdivided into seven categories that describe the content of the
DR (e.g. business data, production data etc.). Figure 7 illustrates the classification of
DRs according to the content of the DR.
                                                    – 55 –



          Figure 7 - Decision tree for classifying data requirements - contents


                DR relates to fixed
                DR relates to fixed                 YES
                 data about the
                  data about the                                        Business data
                                                                        Business data
                    business
                     business


                          NO                       DR relates to
                                                    DR relates to        Purchasing
                                                                         Purchasing
                                                input/output and/or
                                                input/output and/or
                                                  purchase/sale of
                                                  purchase/sale of
                                                       goods
                                                       goods               Sales
                  DR relates to
                   DR relates to      YES                                  Sales
                 produced goods
                 produced goods
                                                 DR relates to data
                                                 DR relates to data
                                                about product itself
                                                                        Product data
                                                                        Product data
                                                about product itself
                                                     YES
                          NO
                                                  DR relates to
                                                   DR relates to
                                               production of goods
                                                                       Production data
                                                                       Production data
                                               production of goods
               DR relates to actual
               DR relates to actual   YES
               production of goods
               production of goods
                 in the business
                  in the business
                                                   DR relates to
                                                   DR relates to
                                                  personnel who
                                                  personnel who        Personnel data
                                                                       Personnel data
                          NO                      produce goods
                                                  produce goods
                                                     YES
                   DR relates to
                   DR relates to                     YES
               processed data from
               processed data from                                     Accounting data
                                                                       Accounting data
                 above categories
                 above categories




Source: Manual for conducting Standard Cost Model measurements, 30




The administrative activities the businesses have to carry out to comply with the
individual data requirement are standardised into 16 activities, in line with the
international SCM Network’s Manual (see Table 2 in section 1 above).
Importantly, Denmark also measured IOs that would be complied with even if
compulsory regulation would be removed. Also IOs generated by optional schemes
(e.g. asking for a subsidy) were covered by the measurement if such obligations are
considered as conditions for being on the market. So, like other countries, Denmark
measured costs and not burdens. The identification of IOs as obligatory or voluntary
obligations was carried out by consultants in collaboration with the involved ministry.
IOs were differentiated into three categories71:
•      IOs relating to subsidies
•      IOs relating to certificates
•      Other IOs relating to regulation requirements
The consultants had to integrate the IOs into this scheme. Creating further categories or
proposing new categories was not impossible but required the approval of the Danish
Division for Better Business Regulation.


71   See Manual, 38
                                            – 56 –



Denmark was also confronted with the problem of demarcation, especially in cases
where the same administrative activity can be attributed to two or more rules, as
different rules require businesses to provide the same information. Without an exact
demarcation, double counting problems may arise. In Denmark, when two regulations
contain the same IO, the cost of producing the information is divided equally between
the two rules. The Danish manual highlights the importance of “a clear demarcation
and definition of the area of regulation where administrative costs are to be
measured.”72 Furthermore, consultants were asked to integrate information on related
regulations in the data set for the business-related laws. They also have to describe the
connections between different laws and their overlapping in obligations.

2.2.1.4       Identification of relevant business segments

Segmentation of businesses was carried out on a case-by-case basis. The most
important segmentation criteria were firm size (number of employees), industry sector,
whether the businesses report digitally or manually and whether businesses outsource
the task to comply with the information obligations or not. The segmentation was
“target-oriented”, all segmentations exhibit a trade-off between cost effectiveness (“ask
as less firms as possible”) and the need for accuracy (“ask enough firms to get accurate
results”). If segmentation does not fit reality, the firms in each segment ultimately
differ from each other, and too many firms would have to be asked to get
representative results. If the segments are well chosen the firms tend to be equal and so
a small sample of firms will represent the whole segment. The Danish segmentation
therefore tries to approach segmentation on a case by case basis to hold the costs low
(each further business segment requires at least five additional interviews with
businesses), and to reach accurate results through proper segmentation. If the focus of
the measurement does not lie on sectoral impacts, it might not be as worthwhile to
analyse sectoral impacts of each information obligation.
In line with the prototype SCM, a population was then selected for each segment. As
already mentioned, the IOs are subdivided into data requirements. DRs have a rate
instead of a population. The rate indicates the proportion of businesses complying with
the IOs that have to comply with the given DR. In some cases only some businesses
have to comply with a specific data requirement while all businesses also have to
comply with the rest of the DRs. The frequency indicates how many times a year an
information obligation has to be complied with.
As regards the data sources used to identify the relevant population, rate and
frequency, Ministries use already available information on businesses registration,
statistical materials, and surveys: in some cases, where it is not possible to obtain the
necessary information, a qualified estimate was made. The Danish manual highlights
the importance of documenting the source of the information to be able to reproduce
the information in the same way in subsequent measurements.



72   See Manual, 38
                                           – 57 –



2.2.1.5       Interview guide

No standard interview guide was used in the Danish measurement. Accordingly, the
consultants had to prepare an interview guide for individual cases, which had to be
approved by the Commerce and Companies Agency. In addition to gathering
quantitative data, the interviews are used to shed light on qualitative aspects, for
example73:
•      Proposals for rule simplification
•      Irritation burdens
•      Best practice in businesses
•      Whether businesses use the information in other contexts
•      Whether businesses just prepare information for the government or whether they
       also use it themselves
As a result, Denmark includes the opinion of businesses in their measurement,
especially as regards the way in which businesses perceive given pieces of regulation,
or whether a specific IO is regarded as especially irritating/onerous.
Furthermore, the question whether an administrative activity would be carried out
even absent regulation helps to differentiate between administrative burden and
administrative costs. Although it was planned to ask the businesses whether they
would continue producing the information when the information obligation is
repealed, it was not realistic to do so. The businesses were not able to answer the
question whether they would continue producing the data requirements or not because
most of them did not think about it before. Only in some cases where the burden
percentage showed to be very low it was qualitatively reported. If such a
differentiation had been reported for each piece of legislation, then the Danish model
would also be able to report net costs (as in the UK model, see below, Section 2.3).



2.2.1.6       Cost parameters/Overhead tariff

In line with the prototype SCM, the cost parameters were subdivided into internal
costs, external costs and acquisitions. However, acquisition costs are measured directly
as part of the overhead if they are not solely used for the specific information
obligation. Otherwise, the costs are calculated per year. Where an acquisition has a
service life of several years a fixed annual cost equivalent to the total cost divided by
expected service life is specified for the acquisition. Usually it is not necessary to obtain
information on acquisition costs from businesses because “normal” prices of these
acquisitions could be obtained on the market.
To calculate internal costs the pay index for the private sector (LON02) from Statistics
Denmark was used to provide the hourly pay of personnel groups. Hourly pay


73   See Manual, 49
                                                      – 58 –



represents average rates irrespective of gender. The personal groups and their hourly
pay had to be used by the consultants to calculate the costs of the administrative
activities.
Denmark chose one overhead tariff of 25% for all sectors. This calculation was made
in connection with their pilot measurement of the Presentation of Accounts Act. The
manual provides a list of items included in the overhead of 25%. In case consultants
thought that the overhead percentage would differ significantly from the 25% in
individual cases, they had to estimate the overhead percentage themselves, motivating
it and submitting the percentage for approval by the Commerce and Companies
Agency. Acquisitions are included in the overhead, as they may have a long lifetime or
may be used to comply with other IOs. According to the experience of the Division for
better business Regulation, the overhead would remain the same were the Danish
measurement to be repeated in the near future.
External personnel groups and the corresponding hourly tariff were also specified
before the measurement. As occurred with internal costs, the consultants could choose
different tariffs for individual cases, by motivating this choice and securing approval
by the Commerce and Companies Agency.

2.2.1.7        Selection of typical businesses for interviews / normally efficient business

Whenever a large proportion of the target group is expected to comply with an IO, a
random sample of businesses is identified for interviews. A business is normally asked
a few initial questions aimed at assessing whether it can be considered as
representative (i.e., “typical”) of the target group. It is also possible to use this initial
contact as a survey about outsourcing, IT use or other matters that seem to be
significant with regard to business’s costs in complying with the IO.
To the contrary, if it is difficult to find a sufficient number of affected businesses
through random samples, the responsible ministry – which often has very concrete
information on the individual businesses covered by the given IO – is asked to choose a
sample. Between three and five interviews with typical businesses in each business
segment were taken to provide a qualitative insight into the resource consumption of a
normally efficient business with regard to the IO in question. The strategy to identify
normally efficient businesses drawn up by consultants has to be approved by the
Commerce and Companies Agency and the procedure has to be described in the status
report to be produced at the conclusion of the data collection phase.74 The status report
was used to ensure that the timeframe for the baseline measurement was actually
respected. Since the schedule was very tight, it had to be ensured that the procedure
chosen by the consultants was reasonable and possible to carry out within the given
timeframe.
After gathering the data through the interviews, the time consumption for a normally
efficient business with regard to an IO was calculated. This process was carried out in


74   The status report is only available in Danish.
                                         – 59 –



line with the filtering process suggested by the International SCM Network, as
illustrated above in Section 1, Figure 4. If this method to select the normally efficient
business resulted in too widespread results, further segmentation was done. For
example if there were large differences in the time estimates firms have to invest to
comply with an information obligation (or with an administrative activity) sectoral
segmentation was also considered. If different sectoral implications are obviously
mentioned in the rule sectoral segmentation is generally used. Also, if there are digital
solutions mentioned in the rule they are included in the segmentation process. Overall,
digital solutions as a method to reduce administrative burdens did not bring these
great reduction effects as expected. The activities to work on the required IO take in
many cases much more time than the mere act of compliance.
After calculating the time needed by a normally efficient business to carry out the
various administrative activities, the internal costs and the costs of outsourcing are
calculated. After approval by the Commerce and Companies Agency, the validated
data were scaled up to national level for each individual segment in the analysis. The
scaling up follows the SCM formula: time x pay costs (inc. overhead) x population.

2.2.1.8   Database

The Danish measurement is recorded in a complex database. The experiences of three
pilot projects were used to establish a structure, were not only the data are visible, but
also calculations could be done. The structure of the database is illustrated in Figure 8.
Furthermore, the database is available for ministries on the Internet. The ministries can
only see the data, whereas the staff of the Division for better business Regulation can
also work with the data. The smallest data unit reported is administrative activities. On
the basis of the administrative activities different aggregates could be calculated, e.g.
the administrative burden according to EU-directives, to ministries, to rules etc.. An
adaptation of the database according to EU requirements, such as sectoral impact of
different information obligations, is possible, but the data to extend the database might
have to be collected.
                                         – 60 –



                      Figure 8 – The Danish Database model




The database provides seven predefined reports, where users (e.g. ministries) could
choose:
           •   Total costs per ministry and agency
           •   Total costs for one ministry per agency, laws and executive orders
           •   Total costs for one law/executive order
           •   Total costs per IO and standard activity
           •   Change in burdens over a given period of time
           •   Total costs by national and EU legislation
           •   Top 100 the most burdensome laws and executive orders
As regards the possibility to establish an EU-wide database, the Division for Better
Business Regulation was rather sceptical. The argument thereof dwells on the actual
“focus” of an EU database. Whereas the OECD Red Tape Scoreboard focuses on
describing how the burden looks like, the target of the EU should be the reduction of
the burden. Therefore, an EU-wide database, where all 25 countries provide the data
estimated through an overall baseline measurement would not be useful. As soon as it
is possible to highlight the most burdensome areas of EU-legislation through
evaluating a few (for example ten representative countries), this might suffice. Hence,
the core analysis of the EU-methodology should focus on sectoral implications rather
than accurate absolute numbers. This focusing would allow further analysis what
                                                           – 61 –



simplifications in what sectors result in the greatest growth effects or other economic
benefits.
The structure of the database teaches another lesson: If areas are calculated using a
database it is important to clarify what is included in each area. If there are different
definitions used a comparison is not possible or useful. Another example is the
calculation of the burden caused by EU-directives. The Danish experiences with
benchmarking is that it has to be clarified exactly what IOs are requested by a directive.
Otherwise different countries may count different data requirements because the
implementation of the directives is different. When accurate numbers are estimated a
comparison seems to be useful. If differences exist in the results then it might be
important to think on purchasing power parities, “per-capita burdens” or similar
standardisations to make the numbers comparable.
The database is updated every year. Changes in legislation are steadily worked in the
database. The estimates therefore assume that the population is frozen, in other words,
the burden is not reduced if the number of firms goes down and the legislation remains
unchanged.

2.2.2 Content
The baseline measurement covers active private Danish businesses where also IOs to
third parties (public authorities, employees, consumers, etc.) are measured. To
identify businesses, i.a., the business register (the Danish CVR register) was used. The
register contains also businesses that are not really active. These and also foreign
businesses are not included in the measurement.
The measurements covered all business related legislation, i.e., all laws and executive
orders that affect businesses. Therefore, the Ministry of Ecclesiastical Affairs, the
Ministry for Refugee, Immigration and Integration Affairs, the Ministry of Foreign
Affairs and the Prime Minister’s office where not included as their official acts and
regulations are not related to business. Another notable exception is laws or executive
orders that are considered to involve less than 1000 hours administrative work for all
the businesses concerned.75 Consultants had to draw up a list of the business-related
rules that are not included in the analysis, including the reasons for their omission.76 A
threshold is important if a baseline measurement is done, but if only partial areas are
measured a fixed threshold might be irrelevant.
All obligatory rules that the businesses have to follow were measured with the SCM
measurement. Voluntary rules are partially covered by the measurement. The Danish
version of the SCM distinguishes between voluntary rules that the businesses follow
because it is necessary in relation to being on the market and, on the other hand, the



75The first considered threshold of 100 hours was modified, but the threshold is not generally binding. It depends on
the number of affected firms. If there are only a few businesses affected by a rule the threshold could have been ignored
too.
76   The lists are only available in Danish, normally as appendix to each status report.
                                         – 62 –



rules that the businesses follow without being regarded as necessary. The decision to
include a voluntary rule in the measurement was done case by case. In general, most of
the voluntary rules were included.

2.2.3 Procedure

The Division for Better Business Regulation (DBR) as a part of the Danish Division foe
Better Business Regulation (Ministry of Economic and Business Affairs) is responsible
for coordinating the measurement process using the SCM. The DBR must provide an
overview of the volume of administrative burdens for every involved ministry, and is
in charge of reporting the changes in the level of administrative burdens since the
government took office in November 2001. In addition, the Division for Better Business
Regulation is in charge of updating the baseline measurement (the database is updated
every year) and to perform an impact assessment of new legislative proposals with
assistance of the responsible ministries (ex-ante measurement – exactly the same
methodology is used in the ex-ante measurement and in the ex-post measurement with
the exception that in the ex-ante measurement one-off-costs are taken into account.).
There exists no overall budget calculation, but the annual ex-post update of all
ministries costs between € 200.000 -300.000.
On the other hand, an ex ante measurement is typically completed in one month at a
cost of €10,000-20,000 per act. The equivalent of 6-7 staff members are working full-
time in the coordinating government unit, and are mostly in charge of ex ante
measurements, completing ex-post measurements and overseeing updates of ex post
measurements. Moreover, in the nine ministries that cause the greater administrative
burdens for businesses, the equivalent of one staff member has been working half-time
for approximately 8 months coordinating the ministry’s measurement activity. There
exists also an estimate of the costs of outsourcing the measurement (e.g. hiring
consultants), namely €2 million. These costs include the costs of outsourcing the
measurement in the pilot projects, the baseline measurement and the first update of the
database.
The Danish SCM manual recommends that it is important, especially in the
preparatory analysis, that
 •      the Commerce and Companies Agency is involved on an ongoing basis as regards
        methodological and technical choices;
 •      the responsible ministry is involved on an ongoing basis in ensuring technical
        quality;
 •      relevant experts are involved in evaluating and validating the chosen
        classifications and specifications.77
These recommendations should validate the information produced by the analysis and
guarantee uniformity.


77   See Manual, 23
                                          – 63 –



Denmark collected the data using – in order of importance – face-to-face interviews,
expert assessments, telephone interviews, focus groups, business panels and
consultancy studies. The decision on how to collect the data depended on the
complexity of the analysed area. Businesses were asked in telephone interviews. When
an area seemed to be too complex to be captured through telephone interviews – which
was the case in most of the areas – , other forms were chosen. In general, around 80
percent of the administrative burdens are measured through face-to-face interviews.
In the interviews, businesses are asked which of the 16 standard administrative
activities they have to carry out to comply with a data requirement, and how much
time is spent on each activity. Accordingly, it is possible to evaluate the individual data
requirements that make up an IO. The involved ministries and business organisations
are strongly involved in the measurement process. The data collection (business
interviews) is carried out by consultants. The whole measurement was carried out as a
cooperative endeavour between the DBR, the relevant ministries, one consultancy firm
and also relevant business organisations, depending on the sector affected by the
measurement.
Expert assessments were used instead of business interviews in cases when the number
of affected businesses by an IO is very small. In these cases, specialists with
considerable knowledge of the field are involved in the quantification of the
administrative costs for a normally efficient business.
Denmark hired their consultants through a public tender. The consultants were hired
for the whole timeframe in which the baseline measurement was completed. After the
baseline measurement, a new public tender for the annual updates was run. The
quality of the work of the consultants was ensured through validation by line
ministries and the Division for Better Business Regulation. Table 14 below shows how
the work was split between the involved units.
                                                      – 64 –



           Table 14 – Who does what in the 15 steps of the SCM, Denmark




                                                                                                                        Consultant(s)
                                                                                                         Coordinating
                                                                                         Ministry(ies)

                                                                                                           Central
   Phase


                Step




                                                                                                            Unit
                                                Description



                       Identification of business-related regulation to be included in
Phase 0     0                                                                            X                   X          X
                       the analysis
                       Identification of IOs/DRs/administrative activities and
            1                                                                            X                              X
                       classification by origin
            2          Identification and demarcation of related regulation              X                              X
            3          Classification of information obligations by type                 X                              X
            4          Identification of relevant business segments                      X                              X
Phase 1
            5          Identification of population, rate and frequency                  X                              X
            6          Business interviews v. expert assessment                                              X          X
            7          Identification of relevant cost parameters                        X                              X
            8          Preparation of interview guide                                    X                   X          X
            9          Expert review of steps 1-8                                                            X
            10         Selection of normally efficient business                                                         X
            11         Business interviews                                                                              X
Phase 2
            12         Completion and standardisation for each segment by activity                                      X
            13         Expert review of steps 10-12                                                          X
            14         Extrapolation of validated data to national level                                                X
Phase 3
            15         Reporting and transfer to database                                                    X          X



Experiences with consultants in the Danish measurement showed that it might be
useful to hire consultants for long periods, as the initial investment to get familiar with
the SCM tool is substantial. Therefore, a larger timeframe to complete the measurement
seems to be less expensive, as learning effect determine the emergence of economies of
scale overtime, thus improving the efficiency and effectiveness of activities carried out
by consultants. Furthermore, the Danish experience shows that a consortium of or
more than one consultancy firm might cause problems, e.g. rivalry between the
consultants. Denmark hired three consultancy firms for doing the baseline
measurement and one (the now hired consultancy firm was also involved in the
baseline measurement) to do the annual updates. It seems to be efficient if consultancy
firms are involved not only in one country. So, the countries could benefit from
experiences made by the consultants and, furthermore, the consultants may be more
efficient and do not need any preparatory education.

2.2.4 Targets

Denmark set an overall reduction target of 25% for all ministries before starting the
measurement. The target was set politically and is the backbone of the exercise that
ministries are focussing on. There are no sector specific targets set. The timeframe is
                                                  – 65 –



from November 2001 (the zero point measurement) to 2010. As already recalled, the
Danish government launched a general Growth Strategy for 2010; the reduction target
was therefore set within this strategy.
A more refined calculation of the reduction potential for specific pieces of legislation
was anyway undertaken in Denmark. Table 15 below reports the estimated reduction
potential for three major pilot measurements (Financial Statements Act, Law of
Statistics in Denmark, VAT Law).


          Table 15 - Simplification potential in the three measured areas:




*It is important to emphasize that the reduction potential has not yet been realised. However especially the
administrative costs from the VAT Law have been reduced significantly.


After evaluating the baseline measurement, the seven most burdensome Ministries in
Denmark are responsible for around 95 per cent of the administrative burdens for
businesses in Denmark. These ministries are:
•    Ministry of Economic & Business Affairs
•    Ministry of Taxation
•    Ministry of Family & Consumer Affairs
•    Ministry of Employment
•    Ministry of Environment
•    Ministry of Food, Agriculture &Fisheries
•    Ministry of Justice
Furthermore, around 90% of the burdens are concentrated in the 10 most burdensome
regulations within each Ministry. In order to realize the 25 percent reduction target the
focus is therefore on the seven most burdensome Ministries and the 10 most
burdensome regulations within each Ministry. These seven Ministries have delivered
in September 2006:
•   A long term simplification plan showing how the Ministry will reduce the
    administrative burdens by 25% in the coming 4 years (until 2010). The Ministries
    have set a reduction target for each of the top 10 most burdensome regulations.
•   A short term simplification project plan with a detailed description of minimum
    two concrete simplification projects (from the top 10 list) that the Ministry will
    initiate in the coming 6 months.
                                                  – 66 –



The simplification action plans are going to be approved by the Governments
Economic Committee in September and the Governments Coordination Committee in
October 2006.78

2.2.5 Results

The breakdown of administrative burden to report them was done by ministries,
agencies, primary and secondary laws. If the same regulatory requirement can be
attributed to more than one ministry the costs are divided equally between the
ministries. An overview of administrative burdens of each evaluated ministry is shown
in Table 19 below.
Overall administrative burden = € 4,172,400,000 (latest update 2005) (2.13% of GDP)
Per capita burden = € 771.04 (5,411,405 citizens per 2005)
Table 16 below shows central aspects of the Danish measurement. As shown in the
table, the largest share of the costs has its origin in national legislation (57%). There
were 263 laws and 1,100 executive orders included in the measurement, which were
split up into 5,279 information obligations.

     Table 16 – Central figures from the zero point and baseline measurements
      Administrative costs in 2001 (€ million)                                4,392.9

      Administrative costs in 2004/05 (€ million)                             4,326.3

      Development from 2001 to 2004/05 in per cent                            - 1.5 %


      Origin of the administrative costs in per cent:

      A (originates directly from international regulation)                    28 %

      B regulation (international origin, but implemented nationally)          15 %

      C regulation (national origin)                                           57 %


      Laws included in the measurement                                         263

      Executive orders included in the measurement                            1,100

      Information obligations                                                 5,279

      Data Requirements                                                       14,546

      Number of face-to-face business interviews                              1,100

      Hours of face-to-face business interviews                               2,902

     Source: www.administrative-burdens.com/




78   See www.administrative-burdens.com
                                        – 67 –



The origin of the burden can be divided A, B and C. Therefore a table of the top-20
areas exists. In most cases they can trace the directives that are implemented by the
national legislation. An estimate of the share of the administrative burden originated
by non-EU legislation in category B in Denmark is less than 1%, in category A less than
5%.


     Table 17 – Administrative burdens by areas and ABC-classification
                                       – 68 –




The estimates on the burden caused by the EU are available by ministries (compare
Table 18 below). The most burdensome ministries according to the EU-caused burden
are especially Economic and Business Affairs and Family and Consumer Affairs.


    Table 18 – Top-5 most ‘EU-burdensome’ ministries/areas in Denmark




Furthermore the Danish measurement allows to calculate the burden on Danish
businesses caused by individual EU-directives. An exemplary list of burdensome
directives is shown in Table 20 below. The procedure to get the most burdensome EU-
directives started with calculating the most burdensome areas (presented in Table 17).
In these areas further analysis were done. The identification of the most burdensome
directives was easy if the implementation into Danish law was done through one
single national rule. A more complicated case occurred where one Danish law
implements more than one EU directive. Therefore the origin of the information
obligations of the Danish law had to be identified. The most complicated case was,
                                          – 69 –



when more than one EU regulation is implemented through more than one Danish
rule. These calculations were not possible in the short timeframe of this pilot project. In
general, it might be possible to do it, but it takes time, because different experts in the
ministries would have to be asked to work on what information obligation requested
in which EU-directive can be found in what Danish rule. Therefore, to work on an EU-
methodology, the Division for better business Regulation highlights the need of exact
definitions or demarcations, what information obligations have to be measured by the
member states to guarantee that all countries measure the same. Otherwise, the results
are not comparable.
                         – 70 –

Table 19 – Results of the Danish measurement by ministry
                       – 71 –
Table 20 – Most burdensome EU Directives in Denmark
                                             – 72 –



According to the Danish measurement and furthermore on the calculations of most
burdensome EU-directives, the Division for Better Business Regulation (DBR) is
working on proposals, which can be followed through quick action to reduce
administrative burdens caused by the EU (“low-hanging-fruits”). These upcoming
proposals reportedly predict significant reduction potentials, but must be considered
as a work in progress, not as official statements.

2.2.5.1   The financial effect of administrative reductions

The SCM method is used in Denmark as basis for calculating the effects of
administrative reductions on growth. Therefore, it is examined what industries are
affected and what effects the reduction of administrative burdens and, furthermore,
the release of resources has on growth. The resources used for complying with
information obligations, for example employees who worked on completing forms, can
be used for productive work in the same or in other companies. The growth effect that
administrative reductions have on value growth is expressed in a multiplier indicating
the relation between the size of administrative reductions and additional growth. To
investigate the multiplier effect the “Copenhagen Economics Trade Model” (CETM),
which is shortly described in
Figure 9, is used.


 Figure 9 – Description of the Copenhagen Economics Trade Model (CETM)
   The model is a static used general equilibrium model which describes Denmark as a
   small open economy. The data incorporated in the model is drawn from the GTAP6
   database (see www.gtap.org) with 2001 as the basis year. In principle, it is a global
   model, which includes a detailed description of the EU25 countries. However, in the
   calculation of the Danish multiplier, the model focuses on the Danish economy and treats
   the EU15 countries and the rest of the world as two areas. The model includes a detailed
   distribution between industries, and therefore, it is useful in an analysis such as this one,
   where it is important to describe how changes in one national industry affect other
   national industries through diverted trade effects.
   On the production side, it is assumed that there is profit maximisation and total
   competition on all markets. All companies have the same basic cost structure. The
   production in each industry is performed through a combination of capital, manpower and
   consumption of semi-manufactures. First, the companies choose the optimal amount of
   capital and manpower, which is then put together with semi-manufactures. It is assumed
   that the companies substitute between manpower and capital with an elasticity of 1, while
   there is a steady relation between value growth and semi-manufactures.
   The consumption side of the model is described through a benefit-maximising
   representative household, which has a steady supply of capital and manpower. Capital
   and manpower are fixed at a general level, but can move between industries.

Source: Copenhagen Economics



Administrative cost reductions are assumed to enable companies to reach the same
production level with less manpower and so increase labour productivity. In the long
                                        – 73 –



term it results in increased production of goods and services and additional value
growth. The higher level of production pushes down prices and increases the average
wage rate.
The calculation of the multiplier effect is based on a realisation of administrative
reductions of DKK 1 billion distributed between industries in the economy in
accordance with their share of total number of employed people in Denmark. The
simulation indicates an increase of labour productivity and a corresponding increase in
total value growth of almost DKK 1.4 billion in the long term. Accordingly, the
multiplier between the change in value growth and the size of the administrative
reductions lies at about 1.4. Although the administrative reductions of DKK 1 billion
are only a numerical example the overall multiplier remains unchanged if the amount
of reduction changes. The Danish calculations include also sector specific reductions,
which correspond to different multipliers, depending on the differences of the
industries and also how the different industries affect other parts of the economy. One
of the major aspects, how the multiplier looks like, is the export share of the industry
affected by administrative reductions. The higher the export share of the affected
industry, the higher is the multiplier. The multiplier also depends on who buys the
products of the affected industry. If other industries buy them the reduction causes
further increases in production and so leads to a higher multiplier. If households are
the primary buyers, there are no positive production effects on the rest of the economy.
According to these arguments the Danish calculations of administrative reductions in
specific industry sectors are illustrated in Table 21

      Table 21 - Multipliers for the entire economy and individual industries
                                                – 74 –



Source: Calculations on the basis of the Copenhagen Economics Trade Model (CETM).
Note: The multiplier is calculated on the basis of the change in value growth for the entire economy
      divided by the size of the administrative reductions.
Note: The calculations presuppose that administrative reductions increase labour productivity
      permanently. It is also presupposed that administrative reductions of DKK 1 billion are distributed
      on the industries of the economy in correspondence with the distribution of employment between
      the industries.




2.2.6 Summary

The Danish implementation of the SCM led to a successful measurement, in which
uniformity of results was guaranteed through reiterated control and central
coordination. The measurement process, especially the preparatory stage, was formed
through a top-down approach, where the central unit prepares standardised lists of
cost parameters, administrative activities etc. Every deviation from the proposed
standards had to be approved by the Commerce and Companies Agency. According to
its experiences the Division for better business Regulation expects the SCM method as
it is used in Denmark to be applicable on EU level. The methodology does not differ
between the countries compared in this project. Only some decisions were differently
made (e.g. whether the burden on citizens is measured or not).
Furthermore, some changes have to be made nonetheless, because for example data
collection methods strongly depend on national peculiarities. Anyway, in most cases it
might suffice to measure only in e.g. ten countries and to identify only the most
burdensome areas or directives to come up with reduction targets. The question is how
to extrapolate the data from national to EU level and whether it is necessary to
investigate all or only some “typical countries”. Furthermore, it would have to be
clarified: what are these “typical countries” and how important is the exact figure of
the burdens? Maybe it is only important to know the relative burdens to focus on what
regulations should be repealed or changed. On the other hand, if the costs of a
regulation are known, it is normally possible to assess whether it would be worth
working on the reduction of the corresponding burdens.
The Danish measurement uses a subdivision of IOs, i.e. DRs, which seems to be a
useful move to capture the complexity of administrative burdens accurately. However,
the level of detail reached by the Danish government may prove excessive in larger
countries, in which the measurement of IOs broken down in specific DRs would
probably lead to measurement costs skyrocketing.
Most importantly, the Danish measurement allows, in most but not in all cases, for
calculating administrative burdens generated by individual EU pieces of legislation.
Sectoral analyses, i.e. identifying what sectors are most hit by an individual EU piece of
legislation, is however not always possible; in particular, it is not possible to classify
the sectors according to international industry classifications (e.g. NACE codes) at the
moment, but it would be possible after updating the database with the required data,
which might be more or less expensive. To the contrary, producing data segmented by
firm size is possible, as the measurement explicitly considered this aspect in cases were
                                         – 75 –



it was expected to be a relevant criteria for the time spent complying with the
information obligation.
Moreover, the fact that businesses were asked which obligations are particularly
irritating or onerous might help in identifying priority areas for simplification or
reform, i.e. the so-called “quick wins” or “low-hanging-fruits”.
The main lessons that can be learnt from the Danish case study are the following:
•   Detail: subdividing IOs into DRs is certainly useful
•   Standardisation of cost parameters (top-down approach) is very important to
    secure the uniformity of the measurement, also in case of measuring EU-directives
    it has to be clearly defined what information obligations have to be measured by
    member states.
•   The Danish model allows for calculating burdens according to individual pieces
    of EU legislation, at least in the majority of cases
•   Sectoral analysis: sectoral differentiations are not included in the Danish
    measurement: in general, only differentiation in firm size is used. In some cases
    segmentation by business sector was also considered, but such segmentation was
    not carried out according to international classifications (NACE).
•   Qualitative information was collected during the measurement: businesses were
    asked whether specific IOs were particularly irritating or onerous, and this seems
    to allow for the collection of useful suggestions for reform (i.e. “low-hanging-
    fruits”). For this purpose, no overall standardised interview guide was drafted in
    advance.
•   Accordingly, the Danish database allows for an efficient identification of
    simplification priorities (“low-hanging-fruits”)
•   The segmentation of categories A and B into three sub-categories (EU-Directive,
    EU-Regulation and International) makes the Danish model particularly suited for
    communication with the EU SCM, although some adjustments will be needed.
•   The Danish database allows extensive analysis of e.g. low-hanging-fruits – the
    database seems to be one of the most important aspects of a successful and useful
    (e.g. to do further calculations and future use) measurement. It is possible to adapt
    the Danish database to European level and also to include sectoral segmentation,
    although the data have to be collected.
•   The Danish Division for better business Regulation advises to focus on
    similarities and not differences of the SCM approaches to establish a common EU
    methodology.
•   To provide a good measurement a project on measuring administrative burdens
    needs strong political backing. The Danish project benefited from the interest of
    the prime minister and also of the minister of finance.
                                        – 76 –



•   The Danish experiences on hiring consultants suggests to concentrate on one
    consultancy firm and to hire it for a long period. Also the timeframe of the
    measurement should be large enough to utilise these benefits.
•   The measurement of administrative burden should focus on reduction targets and
    on identifying reduction potentials rather than on establishing an exhaustive
    database with absolute numbers of administrative burdens, maybe according to
    industry sectors. What areas/directives/rules are most burdensome is more
    important than how large these burdens are in absolute terms.
•   A distinction between administrative burdens and administrative costs was
    tried through collecting qualitative data. This approach seemed to be impossible or
    to complex since most of the asked firms had not thought about it.
•   Digital solutions do not have a large reduction potentials as was expected.
    Without simplifying activities the firms have to do to comply with the obligations
    digital solutions do not result in high reductions, because the transmission of
    required data is often not as expensive as the process of calculating them.
•   The more complex the measurement process, the higher is the importance of the
    preparatory stage: especially in the case of the EU there exists the need of
    standardisations and definitions what has to be measured by the member states.
                                                         – 77 –




2.3 The United Kingdom
Amongst the EU25, the UK has probably the most consolidated tradition in the field of
better regulation, especially as regards the use of compliance cost assessment (since
1985) and regulatory impact assessment (from 1998).79 The adoption of the SCM was
recommended by the Better Regulation Task Force in the “Less is More” publication in
March 2005, and was then implemented in the ambitious Better Regulation Action Plan
launched in June 2005 by the Chancellor of the Exchequer, Gordon Brown. The Action
Plan was aimed at embedding a risk-based approach in regulatory decision-making,
announced as providing for “no inspection without justification, no form filling
without justification, and no information requirements without justification.”80
Under the prescriptions of the Action Plan, Departments started measuring the total
administrative burden imposed upon businesses (including the costs of form-filling,
undergoing inspections and complying with data requirements).81 Moreover,
businesses were invited to propose areas of regulation and administrative costs that are
needlessly burdensome,         also through a new online portal named
www.betterregulation.gov.uk.82 The Panel for Regulatory Accountability within the
Cabinet Office is in charge of setting targets for burden reduction for each department
by the 2006 pre-budget report. Already in November 2005, some departments started
preparing ‘simplification plans’ by reviewing existing legislation and taking into due
account proposals coming from businesses as well as guidelines contained in the
Hampton review and in the BRTF’s “Less is more” document.83
The Legislative and Regulatory Reform Bill, introduced to Parliament on 11 January
2006, completed its Committee stage in the House of Commons on 9 March 2006. The
bill mandates new fast tracks for repealing or amending outdated and unnecessary
legislation, sets out the powers to merge regulatory bodies and introduces new tools
aimed at promoting the use of a risk-based approach as recommended during the
Hampton review. Entry into force of the Bill is scheduled for summer 2006. Detailed
deregulatory proposals – mostly based on suggestions by businesses – will then be




79The CCA procedure was launched with the White Paper, Lifting the Burden, Cmnd 9571 (1985). For an overview, see
A. Renda, Impact Assessment in the EU. The State of the Art and the Art of the State, CEPS Paperback Books, Brussels, 2006.
80The Action Plan followed Hampton Review on administrative burdens, which had suggested the adoption of a risk-
based approach as well as massive consolidation of UK regulators. See e.g. “Brown pledged to Cut Business Red Tape”,
The Guardian, 24 May 2005. As a result, Chancellor Brown announced the plan to reduce UK regulators from 31 to as
few as 7. See Cabinet Office, A Bill for Better Regulation: A Consultation Document, 25 July 2005, Chapter 2.
 See the press release of the Cabinet Office, “Cabinet Office kicks-off project to measure and cut red tape on business”,
81

CAB 043/05, 15 September 2005.
 By 13 July 2006, the portal had received over 100 proposals, with an additional 150 being received through other
82

methods.
83 See the Treasury’s Press Notice of 24 May 2005, “Chancellor Launches Better Regulation Action Plan”; and BRTF, Less
is More.
                                                         – 78 –



included in a further ‘Deregulation’ bill to be submitted to Parliament by the second
session of 2006.84
In launching the consultation phase on the Legislative and Regulatory Bill, on 20 July
2005, the Government announced that it had accepted all eight recommendations
issued by the BRTF in the “Less is More” report, and decided to focus on the following
three main objectives:
•     regulating only where necessary and in a light touch way that is proportionate to
      risk;
•          setting exacting targets for reducing the cost of administering regulations; and
•          rationalising the inspection and enforcement arrangements for both business and
           the public sector.
In January 2006, the BRTF was replaced with a Better Regulation Commission, whose
main role is to advise and challenge government departments on regulatory reform
issues and to scrutinise departmental plans for regulatory simplification. By the end of
2006, the National Audit Office will start reporting to the Parliament on departments’
performance in implementing the new risk-based methodology and in effectively
reducing the burden of regulation, as well as on regulators’ performance against the
recommendations of the Hampton Review.85
As was also recalled by the Rt Hon John Hutton MP, then Chancellor of the Duchy of
Lancaster and Minister for the Cabinet Office, in launching the consultation on the new
Better Regulation Bill, “[t]he potential economic gains from stripping away
unnecessary regulation are enormous”. Hutton also recalled estimates by the BRTF that
the new approach “could boost British national income in the long term by 1% of GDP
– a huge gain of around £10 billion for the UK economy”.86 The BRTF also calculated
that adopting the SCM for measuring administrative burdens and then targeting a 25%
cut in such burdens over four years could reduce direct regulatory costs on businesses
by £7.5 billion, yielding a £16 billion increase in the UK GDP in the medium term.87 As
of now, however, targets were set only for three departments (DTI, DEFRA and HSE):
in all cases, the target chosen was a 25% reduction by 2010.
The baseline measurement started in September 2005 and the results are expected in
the second half of 2006. Sixteen departments were involved in this measurement. In the




84   See Cabinet Office, A Bill for Better Regulation.
85See the Cabinet Office’s press notice, “Cabinet Office kicks-off project” and the Cabinet Office’s Consultation
Document, A Bill for Better Regulation.
86See the Cabinet Office’s press notice, “Transforming the Regulatory Landscape – Launch of a Consultation on a Bill
for Better Regulation” (available at http://www.cabinetoffice.gov.uk/regulation/news/2005/050720_bill.asp – visited 2 August
2005). The approach taken by the UK Government has been termed ‘one in, one out’, to express the need to “encourage
a better balance between the introduction of new regulation and deregulation”. See speech by Sir David Arculus,
Chairman of the Better Regulation Task Force, to staff of the Financial Services Authority, 29 June 2005 (available at
http://www.fsa.gov.uk/Pages/Library/Communication/Speeches/2005/0705_sda.shtml – visited 3 August 2005).
87     See   the     Statistical   Appendix       to     the     Less  is    More      White     Paper     (available     at
http://www.brc.gov.uk/news/2005/lessismore.asp#stats – visited 29 August 2006).
                                                       – 79 –



meanwhile a separate exercise was done by the tax authorities of the UK, the results of
which were published in March and April 2006.88
As regards the UK implementation of EU legislation, in the first half of 2006 Lord Neil
Davidson, the Advocate General for Scotland, led a comprehensive review (the
“Davidson review”), aimed at ensuring that domestic implementation does not result
in unnecessary regulatory burdens as a result of gold-plating or double-banking. The
Review launched a call for evidence between 3 March and 25 May 2006, and a
summary of responses was published on 19 July 2006.89 Following further analysis, the
Review will report with conclusions and recommendations by the end of 2006. The
final report will set out specific proposals for reducing any unnecessary burdens
(administrative and policy costs) in the stock of EU-derived legislation, as well as
wider lessons for best practice implementation of European legislation in the future.
Below, we describe in detail the peculiar features of the UK variant of the SCM, and the
evidence gathered so far in the measurement exercise.



2.3.1 Methodology

2.3.1.1       Regulations covered by the measurement

The UK baseline measurement covers central government regulations. However, such
a definition is to be interpreted broadly, and covers, for example, also non-legislative
regulation with government backing, such as approved codes of practice. The UK
Standard Cost Model Manual defines regulations as rules “with which failure to
comply would result in a business coming into conflict with the law or being ineligible
for continued funding, grants and other applied for schemes”.90 This definition
includes all measures with legal force imposed by central government and other
schemes operated by central government, including:
•      Directly applicable EU Regulations;
•      Directly applicable sections of Acts of Parliament;
•      Statutory Instruments;
•      Rules, orders, schemes, regulations etc. made under statutory powers by Ministers
       or agencies;
•      Licences and permits issued under central Government authority;
•      Codes of Practice with statutory force;
•      Guidance with statutory force;



88See KPMG, Administrative Burdens- HMRC Measurement Project, Final Report. And Real Assurance, Estimation of FSA
Administrative Burdens, June 2006. .
89   €See http://www.cabinetoffice.gov.uk/REGULATION/reviewing_regulation/davidson_review/summary.asp.
90   See KPMG, Administrative Burdens- HMRC Measurement Project, p.52
                                                    – 80 –



•      Codes of Practice/Guidance/Self-Regulation/Industry Agreements with
       government backing, e.g. “Approved Codes of Practice”
•      Bye-laws made by central Government.
In turn, the definition excludes:
•      Codes of Practice/Guidance without government backing;
•      Voluntary agreements between businesses including self-regulation/industry
       agreements with no government backing;
•      Obligations arising from local government measures where these are not concerned
       with implementing central government policy;
•      Obligations arising from the Common Law (e.g. of an employer to his employees);
•      Local authority bye-laws, pure local authority regulation;
•      Devolved areas where policy responsibility has been transferred to the Scottish
       Executive, Welsh Assembly Government or Northern Ireland Executive.
As regards EU legislation, the UK Manual specified that when EU regulations do not
require any domestic implementation, and are therefore directly enforceable as such,
the regulations only have to be listed and flagged as such, but it is not compulsory to
include them in the measurement – although the Manual specifies that this would be in
any case “desirable”.91 This is of course understandable, as the UK baseline
measurement aims at identifying areas for reduction of administrative burdens that fall
under the sphere of influence of the UK government departments. As will be specified
in more detail below, this also means that administrative requirements listed and
flagged within the category A-EU-Regulation are not necessarily measured.
Observed results in any case testify that such burdens have been measured in practice.

2.3.1.2       Scope of measurement

The scope of the UK measurement is slightly broader than the scope of the prototype
SCM in some respects, and narrower than the scope of the proposed EU common
methodology. This is due to the following peculiarities:
•      The UK baseline measurement covers administrative burdens imposed by
       legislation on private businesses and semi-private businesses (e.g. charities), but
       not public authorities and citizens. The UK SCM Manual specifies that “[t]he term
       business should be taken to mean every sector of the economy, with the exception
       of the public sections of public administration and public services as defined by the
       Office for National Statistics for National Accounts purposes. This definition
       therefore includes business, charities and the voluntary sector”.92 This also means
       that, unlike what occurred in the Netherlands, public owned businesses which
       cover their own costs have not been included in the measurement.


91 “There may be some interest in understanding the burden imposed when considering EU simplification plans and it
is for such purposes that it may be desirable to estimate the burden of such regulations.”
92   SCM Manual, §3.1.9.
                                                          – 81 –



•       In addition, the measurement covers both information obligation to public
        authorities and to all third parties, including employees, consumers and
        shareholders, as required by the individual regulation.93 However, when a
        Department has a large proportion of obligations to third parties, alternative
        approaches may be chosen after discussion between the department, the BRE and
        the selected consultants.94
•       In line with the prototype SCM, the UK model includes in the measurement also
        information obligations that would be complied with even absent a specific
        legal prescription. This means that the UK model measures administrative costs,
        not just administrative burdens.95
•       The UK model also includes information obligations arising from non
        compulsory measures (i.e. voluntary obligations). Furthermore, in the UK a 100%
        take-up of the target groups is assumed, in order to focus on the potential burden
        where high burdens could be a barrier to full take-up.96
•       In the UK, IOs with cost-determined reimbursement are included in the
        measurement, but the level of reimbursement is recorded in order to include such
        regulations on a net-basis. In this respect, the UK variant of the SCM differs from
        the Danish one, where these IOs are not included in the measurement; and it also
        differs from the Dutch model, in which the amount of reimbursement is cleared in
        the administrative cost measurement.97
As regards the areas covered by the measurement, the measurement involves sixteen
departments. A separate measurement was carried out to estimate the tax burdens on
UK businesses, and the results were published in April 2006. No specific areas were
excluded from the measurement.
More in detail, in September 2005 the departments involved submitted a list of 2,266
regulations that would potentially fall within the scope of the measurement exercise.
The BRE and the consultant (a consortium led by PwC) then proceeded to scrutinise
this preliminary list of regulation in order to check for consistency and avoid
duplications, truncations, omissions and cases of misnamed regulations, while at the
same time identifying potential demarcation problems, that were solved at a later stage
(at Step 2 of the 15 steps of the prototype SCM, see below).




93   See, contra, SCM Network, Difference in the application of the SCM, July 2005.
94   See Manual.
95However, as will be shown below, results in the UK database are reported both in terms of total costs (administrative
costs) and net costs (i.e. administrative burdens).
96See SCM Network, Differences in the application of the SCM. In the Netherlands, where there is known to be a very
different level of take-up this should be noted during the listing of regulations and/or measurement process.
97See OECD Review of the Standard Cost Model (2005). The SCM seeks to exclude from the measurement process those
costs that are already in the public accounts: the focus is on burdens that are uncompensated by government. However,
the OECD recommended that reimbursement be not subtracted from administrative burdens in the measurement. Id. at
§112.
                                                     – 82 –



As shown below in Table 22, the final baseline contained 1,323 regulations, plus 112
amending regulations. This list was validated with the responsible departments and
was further modified during the implementation of the measurement by the
consultant, upon approval by the departments and the BRE.


                     Table 22 – number of regulations by department




Source: PwC, Technical Summary




2.3.1.3    Focus: one-off v. recurring costs

In line with the prototype SCM, the UK baseline measurement does not cover one-off
costs. However, such costs are taken into account in the ex ante measurements for
inclusion in a RIA. In this case, for example, the cost of reading guidance to get familiar
with a new set of regulatory obligations is taken into account in the assessment of costs
related to the regulatory options considered. However, although estimating
‘implementation costs’ has become a mandatory step in the UK RIA model since
August 2000, in practice such costs have seldom been calculated.98
Of course, in some borderline cases it may be difficult to distinguish between one-off
requirements and information obligations that arise with very low frequency,



98 Is the current consultation for the review of the UK impact assessment model, the inclusion of a mandatory
assessment of both “administrative costs” and “policy costs” is envisaged. See the consultation document by the BRE,
Delivering Tools for Better Regulation, July 2006.
                                                    – 83 –



especially when such frequency is difficult to estimate. Where departments believe a
specific regulation imposes administrative costs that might not be considered as
recurring, they should ask the BRE to decide if the regulation should or should not be
included, providing the BRE with evidence to support their case. In any event, the
regulation at hand is included in the list of regulations and is marked as a rare
contingent requirement; moreover, its record also contains details of the BRE decision
about measurement.99

2.3.1.4    Borderline cases

The UK SCM Manual anticipates that in some instances borderline cases may occur in
which it may be difficult to decide whether a regulation falls within the scope of the
baseline measurement. Reported examples are the following100:
•     Complaints: the right of businesses to complain about decisions is not an
      administrative burden and so is not measured in a standard cost analysis.
      However, in sectors where complaints are very common, the SCM Manual
      recommends that a qualitative survey is carried out to find out about the parts of
      legislation that are most difficult to understand and/or lead to filing complaints;
•     Household v. business: the border between the two is somehow difficult to draw
      whenever self-employed individuals apply for schemes or subsidies as employees:
      in this case, as the individual acts as an employee, the corresponding
      administrative work is not considered in the measurement;
•     Inspections: the UK better regulation agenda exhibits a strong focus on reducing the
      cost of inspections, especially since the 2005 Hampton review. In the baseline
      measurement, only inspections that can be related to a specific IO are included,
      whereas the cost of broader inspections is not measured;
•     Litigation costs are not included, unless it can be proved that cases cannot be
      avoided by fully complying with an IO;
•     First time compliance must be included in the measurement, but the population is
      only composed by the new firms in the segment that have to comply fr the first
      time each year: the need to read guidance documents and get familiar with the new
      task is included in this measurement.

2.3.1.5    Information Obligations, data requirements and administrative activities

The UK model is based on the internationally acknowledged taxonomy of information
obligations (IOs), data requirements and administrative activities. An IO is defined as
“a duty to procure or prepare information and subsequently make it available to a



99See Manual. As cases are presented to the BRE, decision criteria for the exclusion of such requirements will be
developed.
  Some of these – complaints, household v. business and inspections – are also reported in the International SCM
100

Manual by the SCM Network, at 22.
                                                             – 84 –



public authority, as well as a duty to facilitate the collection or preparation of
information by others, e.g. by permitting and cooperating with an audit, visit or
inspection. This includes regular requirements to read guidance and updated rules, for
example rules which are updated annually. It is an obligation businesses cannot
decline without coming into conflict with the law or being ineligible for continued
funding, grants and other applied for schemes.” An indicative list of IOs is provided by
the UK SCM Manual in line with the Danish and the SCM Network’s International
Manual.101
The UK Manual is unclear as regards the need to measure IOs to third parties. The
indicative list reported in Table 1 – which is reported also in the UK SCM Manual –
includes some IOs directed to third parties (e.g. labelling): however, the Manual also
reports that “it has been decided that such obligations should be identified but not
included in the baseline. They should be flagged as relating to third parties in the
database.”102 But the Manual also specifies that these IOs should, where possible, be
included in the measurement. In practice, IOs to third parties have been measured and
will be reported: such IOs are more numerous (and burdensome) in some departments,
depending on the areas of policy they are responsible for. In the final reports,
obligations to third parties and non-third parties will be reported separately. Overall,
IOs to third parties are expected to account for approximately 50% of all burdens.
As regards data requirements, in line with the Danish Manual, the UK model
prescribes that they are classified in two different types of category103:
•       Data requirements – process. These include:
              o    Manual process: these are either one-off or situation-related tasks that are
                   performed so rarely that the information has to be constructed each time
                   and is therefore produced “manually”.
              o    Partially automated process: for these tasks, up to half of the information
                   needed has already been generated or can be generated easily. As a result,
                   the task can be accomplished with use of IT tools or systemised
                   administrative processes, with consequent time savings.
              o    Predominantly automated process: tasks for which more than half of the
                   information needed is already available or easily generated.
•       Data requirements – content. This category contains four main subgroups, i.e. fixed
        data about the business, data related to produced goods (purchasing, sales,
        products), data on the production process (production, personnel), and accounting
        data.
Finally, as regards administrative activities, the UK initially followed the
internationally acknowledged non-exhaustive list of 16 activities, which could be used
by departments in describing the actual activities that need to be performed to comply


101   Id. at 24, and Danish Manual at Box 12. See Table 1 in section 1 for the list of examples of IOs.
102   P. 44
103   See also the Danish Manual, pp. 24 ff.
                                                     – 85 –



with the information obligation.104 Such list was then grouped into 7 sets of activities,
which enabled the interviews to be undertaken within the required timescale.105
Interestingly, when an administrative activity is found to entail form-filling, this has to
be specified and reported, so that the actual amount of form-filling within the broader
category of administrative burdens becomes visible at the end of the measurement per
department. In the UK, ambitious targets in the reduction of form-filling have been set,
for example, by the HSE.

2.3.1.6        Classification of origin

While the UK followed the ABC classification and the 7-step model for classifying the
origin of regulations, the UK database and reporting formats allow for further
subdividing the categories, such that EU legislation appears visible. This is in line with
the model adopted in Denmark, as described above in Section 2.2. In particular, as
shown below in Table 23, the UK model subdivides category A and B in three main
groups: international legislation, EU Directives and EU Regulations.
This also means that the UK database may allow for building a separate category
comprising all IOs arising from EU legislation. For the (ten) most burdensome
regulations, each department must present a breakdown of the results by information
obligation, data requirement, firm size and e-government solution, and highlight the
parts of the regulation that drive the observed level of administrative costs.


          Table 23 – UK reporting format on the origin of regulation (A and B)




Source: UK SCM Manual, Annex 5, page A47.



During the baseline measurement, departments provided information about the origin
of each of their regulations on the original lists. Subsequently, however, the consultant
and BRE decided that it would be more appropriate to specify the origin at a more
detailed level, by classifying information obligations (IOs) and – where possible – data
requirements according to this modified ABC classification. This analysis was carried
out by an ad hoc team at the BRE, and was then validated with departments between
the end of Phase 2 and the start of Phase 3.106



104   Id. At 25. and IPAL (2003), Annex 2.
105   See Table 7 of PwC’s Technical Summary.
106It should be noted that a recommendation was made to departments by the BRE to focus their validation efforts on
those IO/DRs allocated to ‘A’ or ‘B’ origins.
                                                    – 86 –



2.3.2 Procedural/organisational issues

The organisational structure of the UK baseline measurement heavily relies on the role
played by the Better Regulation Executive (BRE) within the Cabinet Office, responsible
departments and the consultant. In particular, overall responsibility for initiating and
coordinating the measurement exercise has rested with the BRE. More in detail, BRE’s
project team ensured the coordinating the work across departments, including the
development and consistent application of the Standard Cost Model (SCM); whereas
the overall management and direction of the project has been conducted through a
Project Board chaired by the BRE with representation from a number of departments.
All departments have been represented at regular meetings of Senior Departmental
Leads (SDLs). Departments have been responsible for the provision of information
relating to the regulations in scope, the validation and sign-off of data and the sign-off
of their respective reports. Wider stakeholder input has been sought from the Strategic
Measurement Monitoring Group.
As regards the consultant, the measurement task was awarded to a consortium led by
PricewaterhouseCoopers LLP (PwC), which included legal experts from DLA Piper
and Landwell.107 The consultants’ involvement lasted eleven months.
The procedure followed by the UK in implementing the SCM is in line with the
prototype 15-step implementation procedure highlighted in Section 1.2. The BRE chose
to involve a single consultant for the main measurement (PwC), whereas the separate
measurements carried out by the HMRC and the Financial Services Authority each
were carried out with the help of one consultant (KPMG and Real Assurance Ltd).
Consultants were selected through a mini-competition from S-Cat lists based
procurement operated by the Office of Government Commerce.
The main measurement involved, as main actors, the responsible departments, the BRE
and the consultant. In particular:
•     the departments were involved in phase 0 (identification of regulations to be
      included in the analysis), step 1 (only for origin classification) and step 5
      (population, rate and frequency).
•     The BRE, as central coordinating unit, was involved together with the departments
      in step 1 (origin classification) and step 5 (population, rate and frequency).
•     The consultant (a consortium led by PwC) was involved in all phases with the
      exception of steps 9 and 13 (experts review of Phase 1 and 2).
•     Departmental and Strategic Monitoring Groups, together with external
      stakeholders, were involved in steps 9 and 13 (experts review of Phase 1 and 2).




107PwC has also drawn upon the expertise of Brigitte van der Burg, Member of the Dutch Advisory Board on
Administrative Burden (ACTAL), as technical adviser. Brigitte’s involvement in the Dutch implementation of the SCM
has given her a deep understanding of the subject and an insight into some of the practical challenges involved.
                                                       – 87 –



               Table 24 – Who does what in the 15 steps of the SCM - UK




                                                                                                                Consultant(s)
                                                                                                 Coordinating
                                                                                 Ministry(ies)

                                                                                                   Central
    Phase




                                                                                                                                Other
               Step




                                                                                                    Unit
                                         Description




                      Identification of business-related regulation to be
Phase 0        0                                                                 X                  X*          X*
                      included in the analysis

                      Identification of information obligations, data
               1      requirements and administrative activities and            X**                X**          X
                      classification by origin

                      Identification   and       demarcation   of   related
               2                                                                                                X
                      regulation

               3      Classification of information obligations by type                                         X

Phase 1        4      Identification of relevant business segments                                              X

               5      Identification of population, rate and frequency           X                   X          X

               6      Business interviews v. expert assessment                                                  X

               7      Identification of relevant cost parameters                                                X

               8      Preparation of interview guide                                                            X

               9      Expert review of steps 1-8                                                                                X***

               10     Selection of normally efficient business                                                  X

               11     Business interviews                                                                       X
Phase 2               Completion and standardisation of time and
               12                                                                                               X
                      resource estimates for each segment by activity

               13     Expert review of steps 10-12                                                                              X***

               14     Extrapolation of validated data to national level                                         X
Phase 3
               15     Reporting and transfer to database                                                        X
* Initialisation of the measurement project and checking of lists from departments
** Classification of origin
*** Departmental and Strategic Monitoring Groups with external stakeholders.
Source: BRE.
                                                       – 88 –



2.3.2.1         Segmentation

During Phase 1 of the UK measurement, only three departments submitted cases in
which segmentation would be needed. Segmentation was to be carried out according
to three main dimensions:
•       firm size was considered on the basis of the four categories used by the Small
        Business Service (SBS), and thus included108:
            o     Micro firms (0-9 employees)
            o     Small firms (10-49 employees)
            o     Medium firms (50-249 employees)
            o     Large (more than 250 employees)
        However, as reported by the BRE, firm size eventually was almost never used as a
        criterion for segmentation, except n the separate tax measurement (HMRC), in
        which a segmentation by size was found to be useful and reliable. In most other
        cases, the consultant itself observed that segmentation by size did not offer a
        reliable picture of the population affected.
•       Industry sector, although not necessary, may be accounted for according to the SIC
        2003 classification by the Office of National Statistics. Interestingly enough, during
        the measurement exercise this type of segmentation ultimately proved more useful
        and reliable than segmentation by firm size and e-government solutions.109
•       E-Government solutions, on a yes/no basis. Also in this respect, the BRE observed
        ex post that segmentation by e-government solution did not prove to be particularly
        useful within the measurement exercise.110
•       Other criteria: in its SCM manual, the BRE had accounted for the possibility of
        using other segmentation criteria, mostly related to existence of regional difference,
        outsourcing of certain activities, etc.




2.3.2.2         Population, rate, frequency

The UK measurement initially followed the prototype SCM in setting criteria for
identifying population, rate and frequency for each IO. In line with the prototype SCM,
the UK model assumes 100% compliance with IOs, without accounting for instances of
non-compliance. The BRE provided tables and statistics from the Office of National


108   KPMG used also the Nano category (0 employees) for the HMRC measurement exercise.
109This activity was carried out for each IO or data requirement (DR), but many IOs or DRs were found to apply across
sectors, or to groups of organisations that did not correspond to SIC codes. This created some problems as SIC codes
were found to provide an insufficient basis for defining the relevant population.
110Face-to-face interviews included questions on the use of e-government solutions – which, as a result, were accounted
for at a later stage, after the segmentation and the identification of the relevant population.
                                        – 89 –



Statistics and the Small Business Service. In addition, data from departments’ impact
assessments and other materials were used in an initial screening. In practice, however,
the methods used by the consultant were more sophisticated.
For each IO/DR, the consultant identified an appropriate information metric, in order
to describe the quantity based on three main categories: a) sector-based metrics; b)
third party metrics; and c) number of transactions. The departments cooperated with
the consultant in applying such metrics to the identified population, when available
data provided at the outset were insufficient to achieve a complete picture. In most
cases, 16 bands were used to segment the population, ranging from Band 1 (0-100) to
Band 16 (>500,000).
However, in practice this step has proved to be probably the most difficult in the whole
implementation process: as reported by the consultant, this work has highlighted
“extensive gaps in knowledge about the number of organisations that are affected
by an IO/DR, the frequency with which they are affected and the extent of
compliance”. This also led to an extensive use of data provided by departments, which
in turn reported that estimates were very hard to reach in many instances.

2.3.2.3   Demarcation

Unlike what happens, for example, in the Dutch implementation of the SCM,
demarcation in the UK is not carried out on the basis of a default rule (e.g., a fifty-
fifty split). To the contrary, departments reach an agreement whenever an overlap
requiring demarcation occurs, and are required to show an audit trail confirming the
negotiation process and the agreement reached. If an agreement cannot be reached, the
BRE arbitrates. In practice, in the UK a default outcome was sought, by allocating IOs
arising from a given regulatory initiative to the department that undertook such
initiative.
In the UK, the process was more difficult as the possibility of double counting also had
to be verified with respect to the two separate measurements carried out, the HMRC
and the Financial Services Authority.

2.3.2.4   Data sources and collection methods

In the UK, a number of different methods were used to collect data needed for the
baseline measurement. In particular, the measurement required 8,476 telephone
interviews, 408 face-to-face interviews, 198 Expert Panels and 15,558 expert
assessments. The percentage breakdown of measurement methods is illustrated in
Table 25 below. As illustrated in the table, the type of measurement method used was
made strongly dependent on the expected magnitude of the IO/DR to be measured. As
a result, direct assessment was used for 55.7% of total IO/DRs, which however
accounted for only 7.4% of overall estimated costs. To the contrary, over 17% of
IO/DRs were measured with some contribution from business interviews, accounting
for almost 80% of total estimated costs. 26.1% of the IO/DRs were measured only
through Expert Panels, accounting for 13.9% of total costs.
                                              – 90 –



Finally, as regards the interview process, a very detailed interview guide was
provided by the consultant and is reported in its Technical Summary.111


                                Table 25 – Measurement methods




Source: PwC, Technical Summary


2.3.2.5        The ‘normally efficient business’

As already recalled in Section 1, the application of relevant cost and time parameters to
the activities to be measured necessarily entails the prior definition, for each segment,
of the ‘normally efficient business’. This step is particularly critical, in that it entails in
most cases a qualitative assessment by the consultant. In the UK, the BRE initially
recommended the same approach adopted in the prototype SCM, which entail the
identification of the media firm in the segment and the elimination of outliers in
observing the reported data.
However, in the practical implementation of the model in the UK, the issue of how to
define the typical business had to be addressed in a number of different ways,
depending on the type of data capture tool used. In particular, where expert panel
were involved in the assessment, an anonymous ‘straw man’ costing (i.e. an estimate
for a normally efficient person carrying out the activity within a normally efficient
business) was usually completed by one participant prior to the Panel meeting, leading
to a final decision of what a suitable estimate would be. Interestingly, the use of
expert panels was found to be particularly useful.

2.3.2.6        Cost parameters and overhead

The application of cost parameters to the collected data followed the general scheme
provided by the prototype SCM, which includes internal costs, external costs and
acquisitions:
•       The assessment of internal costs was carried out based on the Annual Survey of
        Hours and Earnings published by the Office of National Statistics. Nine staff types
        were identified, and for each of them a median hourly wage rate was applied.112


111   Quote, Appendixes 1, 2.
                                                        – 91 –



•       The overhead applied to time-based activities was 30%.113
•       External costs were mostly assessed on the basis of reported cash spend by
        respondents to business interviews.



2.3.2.7       Extrapolation, reporting and database

At the end of the measurement exercise, the consultant extrapolated the data collected
to national level, by programming into ABR.net, a bespoke project management
information system used as a repository of all data used in the ABME. The actual
content and presentation of the final report is discussed with the BRE and the
department involved, and includes a list of the ‘top x’ (normally, 10) most burdensome
regulations. The classification of regulatory origin maintains the differentiation
between international, EU-Directive and EU-regulation, and this would allow for
identifying the most burdensome IO/DRs generated by pieces of EU legislation.
Each department must file its own final report.114 The publication of Final Reports is
expected by October-November 2006. The reporting template includes a summary of
the measurement, which illustrates key results, total costs and costs per affected
business. In addition, a summary of the origin of regulation has to be provided.
The main sections of the final report are the following:
•       Introduction, containing a background section, a summary of departmental
        regulatory areas and units/agencies, a brief outline of the methodology and of key
        stages of the process, a description of the organisation and process of the
        measurement, and a statement on the quality/properties of the measurement
        undertaken;
•       An overview of regulations affecting businesses, with summary statistics of
        regulation included in the measurement, a breakdown of number of regulations,
        IOs and DRs for each unit composing the department, a description of main
        characteristics of the regulated businesses and a methodological note.
•       An overview of administrative costs broken down for each unit composing the
        department, with an indication of total costs per unit, percentage on total costs and
        costs per affected business. Results should also be presented by firm size and –
        where possible – industry sector.
•       A breakdown of administrative costs by regulatory origin, including a breakdown
        of categories A and B by international, EU-Directive and EU-regulation origin.

112A standard value of time was derived for each of the categories based on the median hourly wage rate (excluding
overtime) across the United Kingdom in 2005 by matching the ASHE occupational groups to those used in the data
gathering and then calculating the weighted average median wage using the number of jobs in each occupational group
as the weight.
113   See Annex 3 of the UK SCM Manual for a detailed breakdown of elements included in the overhead.
  The only example available is the Final Report of the Forestry Commission, completed and signed of in June 2006
114

and published in August 2006.
                                                          – 92 –



•     A section illustrating ‘top x’ (often, top 10) most burdensome regulations by total
      administrative costs as well as by administrative costs per affected business, broken
      down by regulatory origin (ABC).
•     A list of administrative costs by activity, based on the list of standard activities
      illustrated above, in Table 2.
•     A section containing detailed data on administrative costs by departmental unit,
      including a table listing IOs and DRs and broken down – where possible – by firm
      size and e-government solutions for the top x most burdensome regulations. In
      addition, the report must contain a summary by standard activity type in which the
      department clarifies the relative weight of form-filling for each activity.
•     A summary section at the end.
•     Annexes containing a step-by-step description of the measurement process, an
      illustration of cases in which demarcation was necessary, an example interview
      guide, a table on annual administrative costs by IO with details on the population
      and breakdown of interview types.
Standardized templates are offered by the BRE for all the content of the final reporting.

2.3.2.8     Targets

The UK government committed to setting targets for the reduction of administrative
burdens by the pre-budget report 2006. Outcomes, simplification plans and targets will
be set for each department, and will be formally submitted to the BRC and to the Panel
for Regulatory Accountability for scrutiny.
In terms of overall target-setting, the Prime Minister has announced a 25% reduction
target for three departments (DTI, DEFRA and HSE) after the publication of draft
simplification plans in November 2005.115 Subsequently, draft simplification plans were
also published for the Department of Health and the FSA. In any case, targets by
Department will eventually be set, and will be all around 25%. If a differentiation will
be made, it will entail only minor differences between departments.

2.3.3 Results
The overall results of the UK measurement will be made available by the end of 2006.
However, the BRE could already make available some of the most important findings
for categories A and B, which are still to be considered as confidential information and,
accordingly, are not included in this version of the Final Report. The sophisticated
model used in the UK allows for a double representation of the results – in terms of


115 DTI has already taken action by abolishing the requirement for 400,000 small businesses to re-apply for small
business rate relief every year. A detailed plan was published by DTI to deliver annual savings of approximately £220
million yearly in the period 2005-2010. HSE has committed to extend risk-based inspection and enforcement practices
across its operations and to cut the burden of form-filling by 25%. In most cases, the sectoral targets identified so far are
still ‘arbitrary’. Furthermore, it is not clear whether the 25% is calculated on the baseline or on other measures, or on a
more specific feature (e.g. form-filling burdens).
                                                        – 93 –



administrative costs (total costs) and in terms of so-called “net costs” (i.e.,
administrative burdens), whereas the latter do not include costs related to activities
that businesses would have carried out even absent regulation. From this standpoint,
the UK measurement appears very flexible and easy to compare with both country
measurement based on administrative costs, and measurements based on
administrative burdens.
The results that will be published at the end of 2005 are only part of the evidence
gathered so far by the UK government in its attempt to implement the SCM and reduce
administrative burdens. As already mentioned, a separate measurement – also based
on the SCM – was carried out for two departments, the Tax and Customs department
(HMRC) and the Financial Services Authority.
In the HMRC exercise, a consortium led by KPMG calculated that the administrative
burden of UK tax regulation equalled £5.1 billion at 31 May 2005.116 EU legislation
accounted for 34% of overall administrative burdens (15% in category A-EU-
Regulation, 16% in category A-EU-Directive and 2% in category B-EU-Directive). Three
of the most burdensome IOs were derived from EU legislation: the issuing of VAT
invoices (9% of total), the submission of VAT return quarterly (6%) and the issuing of
customs declarations (5%). The first two, of course, relate to an EU Directive, whereas
the third arises from an EU Regulation.
As regards the study conducted by Real Assurance Ltd. For the Financial Services
Authority, it covered 233 FSA rules, and some 340 firms (broken down into small,
medium and large in line with the taxonomy used by the SBS) across financial services.
According to the study, the total administrative burden imposed by the 158 rules
identified as imposing such costs is around £600m per annum, approximately 0.5 per
cent of industry costs. The highest burdens fall into two general categories:
•       high costs incurred by a few very large firms, such as costs imposed by rules on
        money laundering prevention, which account for around 40 per cent of the total
        estimated costs;
•       rules which apply to almost all the 25,000 firms regulated by the FSA.
According to the study, the top 20 administrative burdens cover rules that account for
more than 85% of the total administrative costs.
In general, however, this study exhibited a lower degree of detail if compared to the
general measurement and the HMRC measurement. For example, the final report does
not address the issue of the origin of administrative burdens.

2.3.4 Most burdensome EU Regulations

The observation of results of the UK baseline measurement allowed for the
identification of the most burdensome EU regulations. This measurement can be used
as a benchmark for other countries, which in some cases have indicated the same


116   The Project took place between September 2005 and March 2006.
                                                         – 94 –



regulations as generating significant administrative costs for private enterprises. The
estimated total administrative cost generated by EU regulations is £622,365,617.62,
which is approximately 6.2% of total administrative costs in Categories A and B and
8.2% of net costs. This figure also equals 7% of total administrative costs generated in
the UK by EU legislation, and 8.3% of net costs. It must be warned, however, that these
figures do not include regulations analysed in separate measurement exercises, such as
those carried out for the Financial Services Authority and the HMRC.

2.3.5 Summary and comments

The UK implementation of the SCM is particularly ambitious and sophisticated both
from the standpoint of the methodology adopted, and because the SCM is integrated
with the established better regulation tools in use at the Cabinet Office and in other
levels of government. This level of accuracy is also reflected in the overall cost of the
exercise: the identification of the pieces of legislation to be measured and the baseline
measurement are expected to reach a total cost of approximately €26 million.117
According to the BRTF (now BRC), the organisational costs for the reduction work will
be around €5.9 million (£4 million) per year in the UK, compared with €5 million in the
Netherlands.118
In this regard, the most difficult problems emerged during the baseline measurement
were the volume of data to be collected; the determination of the relevant population
affected – where the use of expert panels proved useful and not costly – and most
importantly prioritisation issues. The application of a proportionality criterion in the
UK led more than half of the IO/DRs to be measured through direct assessment.

In addition, the methodology used in the UK to measure administrative costs ex post is
slightly different from the one adopted for ex ante measurements. In particular, as is
understandable, RIAs normally consider only administrative burdens, not
administrative costs: this means that, unlike the SCM, a RIA will not cover the cost of
activities that businesses perform anyway, regardless of the existence of a legal
obligation. This has to be carefully taken into account when updating the baseline with
new pieces of legislation for which a RIA has been undertaken.
This potential problem is even more relevant as the BRE favoured an approach aimed
at creating a ‘live’ baseline, constantly updated with new RIAs, instead of launching
periodical baseline measurements, for example, every three years.119 As observed by
the BRE, a second round of baseline measurement (such as that being launched in 2007
in the Netherlands) would always lead to results that are impossible to compare with
the results of the previous measurement, due to approximation and extensive




117   Quote from SCM Questions. The UK have put the one-off measurement cost at £11.4 million.
118   Like in the Netherlands, also in the UK 3-5 persons per department are involved in the measurement process.
  In the UK, since August 2000, RIAs must include details of “implementation costs” of new pieces of legislation.
119

Implementation costs are defined very similarly to administrative costs (or AB?) in the SCM.
                                          – 95 –



sampling. On the other hand, it is recommended that individual regulations are
reviewed every three years.
In summary, it can be concluded that the UK implementation of the SCM is of
particular interest for the development of the EU common methodology, although
some of its features would be hard to replicate at the EU level and its cost is probably
excessive in this respect. The possibility of tracing back the original piece of legislation
from the ABR.net tool would enable full communication between the EU and the BRE
in apportioning responsibility for the reduction of administrative burdens. However,
gaps still exist in the database which can hamper attempts to trace back the original
piece of EU legislation. With this caveat, when all the results of the baseline
measurement will be available, the database will become a precious tool also for the
forthcoming EU Action Programme.
In this respect, it is worth mentioning – although shortly – that the Davidson review of
over-implementation of EU legislation published the results of its call for evidence on
19 July 2006. The call for evidence ran from 3 March to 25 May 2006, and generated just
over 160 written responses from representatives of many industry sectors. The final
report of the Davidson Review will be published with recommendations by the end of
2006.
                                         – 96 –




2.4 The Czech Republic
The measurement exercise in the Czech Republic started in March 2005 with a
government resolution adopted in April 2005: departments/ministries, and
administrative authorities were asked to measure administrative burdens in their
areas, supported by the Better Regulation Unit. The measurement was basically
oriented at the Dutch Standard Cost Model; however, a decentralised approach was
pursued: i.e., departments/ministries and administrative authorities involved were
given considerable leeway concerning the individual steps of the measurement
exercise.

2.4.1 Methodology

The baseline measurement is confined to IOs imposed on private businesses, as these
are easy to define and to identify, and because the government generally aims at
improving the business environment for the private sector. The measurement covers
IOs not only to public authorities, but also to employees and customers. The main
reason for such choice is that it can be safely assumed that IOs to third parties make up
for a significant share in the overall administrative burdens borne by private
businesses, and because it would be difficult to disentangle administrative burdens
according to the individual parties which are entitled to the information that
businesses are obliged to provide.

2.4.2 Content
The areas covered by the measurement exercise were Finance, Education and Sports,
Culture, Labour and Social Affairs, Health, Justice, Interior Affairs, Industry and Trade,
Regional development, Agriculture, Transport, Environment, Informatics, Statistics,
Surveying, Mapping and Cadastre, Mining, Industrial Property, Protection of
Competition,     Nuclear    Safety,    Securities,      National      Security,   Energy,
Telecommunications, Radio and Television Broadcasting. The measurement exercise
showed that only 3 areas did not create any administrative burdens on businesses
(Foreign Affairs, Defence and State Material Reserves), because these areas do not
include regulations generating IOs for private businesses. This assumption was
substantiated by discussions within the interministerial group built for preparing the
measurement exercise.
No minimum threshold (e.g. 100 hours per year) was applied for the baseline
measurement, nor is one planned for the future: the measurement is intended to
capture the administrative burdens as comprehensively as possible and to provide the
basis for a complete measurement of the long-term development of administrative
burdens, which would be precluded by excluding certain IOs due to a minimum
threshold.
                                                           – 97 –



2.4.3 Procedure

There is a central coordination unit for the measurement of administrative burdens in
the Czech Republic: the Department of Regulatory Reform and Central State
Administration Reform – Better Regulation Unit, which is an Office of the Government.
In general, a rather decentralised approach to measure administrative burdens was
followed in the Czech Republic; this can be considered as the most significant
deviation from the SCM (which represents the methodological foundation of the Czech
measurement exercise). Apart from that, the measurement exercise was closely
oriented at the manuals devised by “pioneer countries” (particularly the Dutch ones).
In the meantime, the Better Regulation Unit has adjusted the methodology, taking into
account the experience made during the measurement exercise.120 Moreover, as the
introduction of a mandatory impact assessment of new legislation is planned for 2007
in the Czech Republic, the methodology had to be adjusted accordingly to allow also
for ex ante assessments. Hereby, no “one in, one out” approach will be pursued,
considering the Czech Republic’s specific situation as a new European member state
obliged to implement the whole European acquis communautaire. Therefore, this specific
situation turned the intended ex-ante impact assessment and the ex-post measurement
of administrative burden into independent projects. In principle, an identical
methodology will be used for ex ante assessment and ex post measurement. However,
the Better Regulation Unit is waiting for an adoption of the government resolution
which is not released yet concerning these new aspects of the methodology.
Furthermore, the implementation of a detailed survey enumerating the concrete
legislation proposed for the purpose of the reduction of administrative burdens is
considered. The survey will be carried out by 5-6 ministries – also the Better Regulation
Unit will participate – that are responsible for 90% of total administrative burdens.
Administrative burdens are broken down by ministries/departments and
administrative authorities. As already recalled, ministries/departments and
administrative authorities were quite independent in conducting the concrete
measurement procedure. This decentralised approach was chosen mainly for two
reasons: first, to account for existing differences across ministries/departments and
administrative authorities and their respective areas of competence; secondly, due to
the very limited staff and resources of the Better Regulation Unit, which made it
necessary to delegate the lion’s share of the measurement exercise to the individual
public authorities under scrutiny. It must be seen as a considerable disadvantage of
this decentralised approach that the Better Regulation Unit does not have central
evidence concerning the concrete measurement procedure followed by the individual
ministries/departments and administrative authorities.
The measurement exercise is not based on a standardised list of IOs, as it was deemed
impossible to come up with a complete and comprehensive list. The methodological
instructions and information provided to the ministries/departments and
administrative authorities in charge of the measurement featured, however, a list with


120   The latest version of the methodology is currently being translated into English.
                                                       – 98 –



examples of IO. However, the new version of the methodology will contain a more
detailed list. Moreover, ministries/departments and administrative authorities were
offered the possibility to contact the Better Regulation Unit to clarify whether certain
rules and activities represented IOs and should therefore be included in the
measurement.
Information obligations are classified as EU or non-EU related according to the
regulatory origin, which follows the standard ABC classification.
As regards demarcation issues, when the same regulatory requirement can be
attributed to more than one ministry/department, the information obligations and
costs are equally split between them, like in the Dutch and Danish models (and unlike
what occurs in the UK).
Businesses included in the measurement exercise were selected based on various
criteria; as already mentioned, there were no central binding requirements or
specifications. In this respect, the recommendation provided by the Better Regulation
Unit was to segment businesses according to form size (in terms of number of
employees)121:
•     entrepreneurs (no employees)
•     small businesses (up to 10 employees)
•     medium businesses (10 to 250 employees)
•     large businesses (over 250 employees)
All firm sizes should be represented in the sample, provided that they are affected by
the information obligation. Most ministries did not exploit the possibility to use
additional criteria, e.g. turnover. If ministries presumed that the administrative burden
of a certain IO was independent of size, no differentiation was made. The
recommended minimum size of the sample was 5.
The ministries/departments and administrative authorities used various data sources
in the selection process. The main data sources used were (sorted by importance):
statistical data from the Czech Statistical Office; data obtained from businesses; own
statistical data of ministries. The Better Regulation Unit recommended integrating
national statistics with EU statistics; however, the latter were only seldom used.
The selection criteria used cannot be specified, as the selection process was in the
discretion of the individual ministries/departments/administrative authorities.
However, generally the selection criteria applied did not differ broadly across different
sectors. In this respect, it is also of interest that some of the individual
ministries/departments/administrative authorities, due to the nature of their
activities, have easier access to private businesses than others, which might also have
influenced the selection process (see also below).


121Note that this classification is different from the one used in the UK, as recommended by the Small Business Service.
See above, Section 2.3.
                                         – 99 –



Focus groups were the most frequently used data collection method, followed by
telephone interviews. Also expert assessments and face-to-face interviews played a
role. The predominant role of telephone interviews is due to cost considerations and
because conducting interviews in many cases was the most simple and convenient
method. Some ministries could rely on existing contacts with private businesses (e.g.
the Ministry of Industry and Trade), while 2 or 3 ministries (e.g. the Ministry of Health)
had to make use of the support of the Chamber of Commerce to establish contacts to
private businesses (for which service the Chamber of Commerce had to be
reimbursed). No uniform interview guide was used: thus, the interviews conducted
were not based on standardised questions. According to the information of the Better
Regulation Unit, several ministries/departments and administrative authorities just
sent some tables to the businesses asking them to fill in the data, without really
proceeding to interview them, and sometimes without providing further instructions
and explanations. Where expert assessments were applied, they were conducted by
internal experts at the ministries/departments or administrative authorities.
Workshops, field trials, business panels and consultancy studies (no external
consultants were involved) were not used. According to the future methodology,
which will also cover ex ante assessments, expert assessments will be of greater
importance than they were for the baseline measurement.
The question of the overhead rate was not specified by the Better Regulation Unit in
the beginning of the measurement process, as it was not addressed in the first versions
of the Dutch manuals on which the Czech measurement exercise was based. As
overhead was included in later versions of the manuals, the Better Regulation Unit
only recommended a percentage of 25% for all ministries/departments and
administrative authorities; the calculation of the overhead percentage, however, was
left to the individual ministries/departments and administrative authorities.
The measurement exercise includes all voluntary IOs – i.e. those that would be
complied with even if compulsory regulation would be removed – as well as
voluntary obligations (e.g., when applying for subsidies). However, only IOs based
on legal provisions were measured (thus, for example, codes of conducts concluded
on a voluntary basis were excluded).
Normally efficient businesses, i.e. businesses that handle their tasks in a normal
manner, were identified by the individual ministries/departments/administrative
authorities in charge of the measurement. No central standard for the normally
efficient business was set; the Better Regulation Unit only provides some general
recommendations how to identify normally efficient businesses (according to the
international manuals). There is no central evidence available how normally efficient
businesses are identified.
Businesses are segmented by firm size and industry sectors. The segmentation
according to industry sectors is based on the Czech industry classification. In principle
it would be possible to use the NACE classification in the future.
                                                 – 100 –



No standardised measures of time/cost for certain administrative activities are used.
The determination of internal and external prices and tariffs was left to the individual
ministries/departments/administrative authorities, who used their own expertise or
asked businesses to provide the necessary information on external and internal costs.
As a result, no standardised (internal and external) tariffs were applied.
Table 26 provides an overview over the distribution of tasks and responsibilities
connected with the 15 steps of the standard cost model.

   Table 26 – Who Does What in the 15 Steps of the SCM – Czech Republic




                                                                                                                   Consultant(s)
                                                                                                    Coordinating
                                                                                    Ministry(ies)

                                                                                                      Central
   Phase


           Step




                                                                                                       Unit
                                           Description



                  Identification of business-related regulation to be included in
Phase 0    0                                                                        X                   X
                  the analysis
                  Identification of information obligations, data requirements
           1                                                                        X                   X
                  and administrative activities and classification by origin

           2      Identification and demarcation of related regulation              X                   X

           3      Classification of information obligations by type

           4      Identification of relevant business segments                      X
Phase 1    5      Identification of population, rate and frequency                  X

           6      Business interviews v. expert assessment                          X

           7      Identification of relevant cost parameters                        X

           8      Preparation of interview guide                                    X

           9      Expert review of steps 1-8

           10     Selection of normally efficient business                            X

           11     Business interviews                                                 X
Phase 2           Completion and standardisation of time and resource estimates
           12                                                                         X
                  for each segment by activity

           13     Expert review of steps 10-12

           14     Extrapolation of validated data to national level                                     X
Phase 3
           15     Reporting and transfer to database                                                    X



No specific (and additional) budget was allocated to the measurement exercise,
which therefore was carried out without the support of external consultants. The
measurement was coordinated by the Better Regulation Unit within its regular duties,
                                                             – 101 –



which do not only consist of measuring administrative burdens. The total budget
allocated to the Better Regulation Unit cannot be split according to its individual tasks,
as the Czech government does not apply project-oriented budgeting. The
ministries/departments/administrative authorities involved, which did most of the
measurement as part of their regular activities, did not receive any additional
resources. Altogether, the measurement exercise started in March, 2005, and was
completed at the end of December, 2005.122

2.4.4 Targets

Before starting the measurement exercise, the Czech government set an overall
reduction target of 20% of the total administrative burdens, which should be reached
by the end of 2010. An overall target was chosen, in line with the positive experience
of other countries, mainly as an incentive for reduction. The overall reduction target
levels fixed by the other countries served as an orientation for the Czech reduction
target, which, however, decided to opt for a slightly less ambitious percentage. The
possibility of adjusting the target after completing the measurement exercise to its
results was left open; however, the probability that the new government in office since
mid-2006 will change the target is rather low. In selecting the concrete timing of the
overall reduction target, account was taken both of the experience of other countries
and of national peculiarities (particularly the available resources and the upcoming
elections). No sector-specific reduction targets were set, as this was not deemed useful
before knowing the results of the measurement exercise.
Currently the most important precondition to take further action to reduce
administrative burdens is the passing of the still pending government resolution
concerning
        •    the implementation of mandatory ex-ante administrative burden assessment
             and the approach “one in, one out” in case of laying IOs of category C (IOs are
             set entirely by the Czech competent bodies)
        •    adoption of the new version of the methodology and
        •    implementation of a detailed survey enumerating the concrete legislation
             proposed for the purpose of the reduction of administrative burden. The survey
             will be carried out by 5-6 ministries – the Better Regulation Unit will also
             participate – that are responsible for 90% of total administrative burdens.
If the government adopts the new methodology by the end of 2006, the target year 2010
can be maintained; otherwise it would have to be adjusted accordingly.123




122Originally the measurement exercise was scheduled for 6 months, i.e. it was to be completed by the end of
September, 2005. As several public authorities involved could not finish the measurement on time, however, the
deadline was extended to the end of December, 2005.
123   Currently it is uncertain when the resolution will be passed, due to the instability of the overall political situation.
                                         – 102 –



Finally, like the Netherlands, the Czech Republic opted for a model entailing
successive rounds of baseline measurement. As a result, in order to measure progress
in the reduction of administrative burdens, a second measurement exercise is planned
for 2010.

2.4.5   Results
The overall administrative burdens measured in the Czech Republic amount to
approximately €3 billion, which corresponds to 2.9% of GDP and € 300 per capita
respectively.

2.4.6 Most burdensome Directives
In the Czech baseline measurement, a number of EU directives were identified as
particularly burdensome for private businesses. These are reported below, in Table 27
As is easily seen in the table, it was not possible to identify most affected sectors, and
only in some cases an estimated figure for administrative costs generated by the
individual piece of EU legislation could be reached.
                                         – 103 –



       Table 27 – Most burdensome EU directives in the Czech Republic




2.4.7 Summary – Lessons
The implementation of the SCM in the Czech Republic was developed and carried out
with a very limited budget, no consultants and a high degree of flexibility, especially as
far as the discretion of ministries/departments and administrative authorities is
concerned. The less ambitious target (20%) was set as a political decision, mostly for
incentivising agencies to achieve significant reductions over the set timeframe. The
Czech model could be improved in a number of ways, which includes the following:
•   Strengthen the central collection of data and evidence (by the Better Regulation
    Unit) on all stages and results of the measurement exercise;
                                         – 104 –



•   Adopt a standardised list of IOs and associated DR/activities;
•   Specify criteria for selecting businesses and use harmonised criteria for
    segmentation and sampling;
•   Use a uniform interview guide with standardised questions;
•   Specify the procedure to identify the ‘normally efficient businesses’;
•   Use standardised measures of time and cost (external and internal tariffs) for
    certain administrative activities;
•   Allocate a specific and additional budget to the measurement exercise, also to be
    able to pay external consultants;
•   Appoint one permanent contact person in each department as the link to the Better
    Regulation Unit;
•   offer more training for people involved in departments.
                                            – 105 –




3 CROSS-COUNTRY COMPARISON AND MAIN FINDINGS
The four SCM variants illustrated in the previous section can be compared from a
methodological, procedural and organisational perspective, as well as from the
standpoint of results reached. In this section, we describe the main similarities and
differences between the selected models. In addition, we highlight the most
burdensome pieces of EU regulation as emerged from the results of the baseline
measurements in the four countries analysed. Finally, we identify a list of priority areas
for simplifications.

3.1       Cross-country comparison

The implementation of the SCM tool in the four countries analysed exhibits significant
similarities, but also important differences as regards the aims/purposes of the
measurement, the scope and frequency of the measurement, the definition of
administrative burdens, and the organisational arrangements adopted. Some of these
differences can be considered as relevant in light of the upcoming EU-wide
measurement of administrative costs. Table 29 below compares some of the key
features of the four models and of the EU SCM as described above, at Section 1.7.
The most relevant differences that emerge from our case studies are the following:
•      Scope of measurement: some countries, such as the Czech Republic and Denmark,
       only calculate administrative costs faced by private enterprises, whereas the UK
       calculate costs for private and semi-private businesses, and the Netherlands also
       include citizens. The EU model is the most ambitious, in that it also includes public
       administrations.
•      Targets: most countries have selected a 25% ‘political’ target reduction of
       administrative costs. An exception is the Czech Republic, where the target selected
       is 20%; in addition, some countries – such as the Netherlands and, to a lesser extent,
       the UK – decided to set (at a later stage) specific targets for ministries/departments,
       whereas others – like Denmark and the Czech Republic – have not set different
       targets for specific ministries.
•      One-off costs: most countries – with the exception of the Czech Republic – do not
       include one-off costs in the baseline measurement. However, in the UK model one-
       off costs are included in the overhead, and the UK and Denmark include one-off
       costs in the ex-ante measurement carried out within RIAs. The proposed EU model
       specifies that such costs, when non-marginal, ‘may be taken into account’. This was
       also the approach chosen for the Dutch baseline measurement.124
•      Obligations set by optional schemes: these information obligations are commonly
       referred to as ‘voluntary obligations’. In Denmark and the UK, these IOs are taken


124   See Manual, December 2003, p.15.
                                        – 106 –



    into account, if they are expected to arise from a quasi-regulation. In the UK, the
    baseline includes also codes of conduct and guidance documents with government
    backing, which cannot be considered as having binding force.
•   Distinction between ‘pure’ obligation and good practice written in the law: ‘Pure’
    obligation refers to what one would stop doing if the legal obligation was removed.
    The EU model assesses all legal obligations even when the latter correspond to
    good practices. In other models, it is possible to assess only pure obligations.
•   Overhead: in the UK, a 30% rate was chosen, compared to the 25% rate used in the
    Netherlands and in Denmark. In the Czech Republic, the overhead percentage has
    been set by particular ministries. No standard overhead percentage for all
    ministries and administrative authorities is intended.
•   Demarcation: most countries use a default 50:50 split whenever an IO/DR is found
    to fall under the competency of more than one department. In the UK, the need for
    demarcation was foreseen, but no 50:50 split rule was chosen. The most appropriate
    split is therefore set through negotiation between departments, and normally the
    department that has taken the regulatory initiative keeps ownership of the
    corresponding obligations.
•   Segmentation: in practice, segmentation criteria differed noticeably. In the UK,
    industry sector and type of activity proved more useful than firm size (except for
    the tax measurement undertaken separately). In the Netherlands, Denmark and the
    Czech Republic firm size was a guiding principle.
•   Accuracy and costs: the Danish and UK models seem likely to reach a higher level
    of accuracy in the estimates, also due to the intensive involvement of consultants,
    the more detailed breakdown of IOs into data requirements (Denmark) and the
    further breakdown of the classification of origin (Denmark and UK). The UK
    database seems the most suited to retrieve original pieces of EU legislation,
    although with some gaps. The greater accuracy, however, is reflected also in the
    cost of the measurement, especially for the UK.
•   Organisational patterns: as shown below, in Table 28, the four national models
    exhibit some differences as regards the role played by ministries, central
    coordinating units and consultants. The Dutch and Czech models rely on ministries
    much more than the Danish and UK models. In the UK, ministries/departments
    are involved only in the initial step of the measurement, which is then carried out
    mostly by the consultant with the supervision of the BRE. In the Netherlands, IPAL
    is involved mostly in the review of activities performed by ministries and
    consultants, and in the final stages of the measurement. In the Netherlands,
    consultants are not involved in the final reporting and transfer to database (step
    15), whereas in Denmark and the UK the setting up of a database was achieved
    with a strong involvement of consultants.
                                        – 107 –



             Table 28 – Who does what – cross-country comparison




In summary, the analysis of the four case studies allows us to draw two main
conclusions. On the one hand, the adoption of a common theoretical framework –
provided by the SCM tool – will certainly represent a significant advantage for the
implementation of a multi-level measurement model coordinated by the European
Commission. Had existing models obeyed to differing theoretical assumptions and
methodologies, such an exercise would certainly have proven impossible from the
outset. At the same time, it must also be observed that the differences in the four
models analysed makes cross-country comparison a rather challenging exercise. The
International SCM Network has recently issued guidance on how to conduct cross-
country comparisons, and specified that, before conducting a benchmarking exercise,
the following minimum points must be agreed upon ex ante:
•   Definitions: countries must use the same definition of IO, government regulation,
    business etc.;
•   The level of detail in the measurement.
•   Collected data: it must be decided which data will be collected and how they will
    be reported. For example; are the businesses segmented by size (small, medium
    and large firms) or not?
•   How is the overhead calculated?
•   What is the approach to activities that a business may choose to continue in the
    absence of regulation (normal business costs)?
•   How are one-off costs dealt with?
                                                         – 108 –



Accordingly, even if only these points are considered, any real benchmarking between
the four countries analysed in section 2 above would seem hardly feasible. As already
recalled, significant differences exist in most of the abovementioned points. A first
attempt to compare national models was made within the “International comparison of
measurements of administrative burdens related to VAT in The Netherlands,
Denmark, Norway and Sweden” carried out in 2004-2005.125 There, differences in the
methodology adopted by the four member states compared created substantial
challenges in ensuring actual comparability of results. The final report states clearly
that:
             “there are some differences in how countries have carried out the
             measurements. Figures that would appear to be simply comparable are found
             to show substantial differences … In some cases, the countries have measured
             information obligations that initially have appeared to be the same, but after a
             deeper analysis it has shown that the countries have made various limitations
             within the legislation. In some cases it has been possible to make some
             adjustments and then compare the figures. In other cases the differences have
             been too big for a correct comparison”
To be sure, not all the problems encountered in the VAT international comparison are
relevant for the creation of an EU SCM and the implementation of the upcoming
Action Programme. However, some of these differences must be considered as
important in this respect. For example, particular problems emerged as regards the
classification of origin, which had to be made at IO level. It emerged that the same IOs
had been classified very differently by the benchmarked member states, and that the
resulting weight of category A, B and C burdens differed widely.126 This result also
suggests that, in setting up an EU common methodology, involvement of the
Commission in the classification of regulatory origin should be ensured.




125   See www.administrative-burdens.com.
126   See Table 12 in the Final Report of the International Comparison on VAT.
                                                                                                 – 109 –



                                                                         Table 29 - Comparison of SCM variants

                          Dutch SCM                              Danish SCM                                UK SCM                                 Czech SCM                                 EU SCM
                 Assessment of the costs of             Assessment of the costs of             Assessment of the costs of               Assessment of the costs of              Assessment of the costs of
Aims/purposes/   administrative obligations imposed     administrative obligations imposed     administrative obligations imposed       administrative obligations imposed      administrative obligations imposed
targets          on private and semi-private            on enterprises by future or existing   on private and semi-private              on enterprises                          on enterprises, the voluntary
                 enterprises and citizens,              business related Danish laws,          enterprises by future or existing                                                sector, public authorities and
                 distinguishing between national and    distinguishing between national        business related UK laws, including                                              citizens, distinguishing between
                 non-national origins (ABC              and non-national origins (detailed     also guidance documents and codes                                                international, EU, national and
                 classification)                        ABC classification)                    of practice with government                                                      regional origins
                                                                                               backing, distinguishing between
                                                                                               national and non-national origins
                                                                                               (detailed ABC classification)

                 Both microeconomic and                 Both microeconomic and                 Both microeconomic and                   Both microeconomic and                  Both microeconomic and
                 macroeconomic use                      macroeconomic use                      macroeconomic use                        macroeconomic use envisaged             macroeconomic use

                 25% overall reduction by 2007, with    25% overall reduction by 2010. No      No overall target set. Sectoral          20% overall reduction by 2010. No       n.a.
                 differing targets for each ministry    sectoral targets                       targets under discussion                 sectoral targets

                 “costs imposed on businesses, when     The costs regarding the                the costs of administrative activities   The cost of compliance with             “costs incurred by enterprises, the
Definition of    complying with information             administrative activities that         that businesses are required to          information requirements ensuing        voluntary sector, public authorities
administrative   obligations stemming from              businesses have to carry out in        conduct in order to comply with the      from legal regulations is referred to   and citizens in meeting legal
                 government regulation.”                order to comply with the               information obligations that are         as administrative burden.               obligations to provide information
cost                                                    information obligations that are       imposed through central                                                          on their action or production, either
                 “AB Citizen comprises the costs        imposed through official regulations   government regulation.                                                           to public authorities or to private
                 incurred by citizens in complying                                                                                                                              parties.”
                 with information obligations
                 ensuing from government
                 regulations. It includes both
                 compliance with obligations and the
                 exercise of rights.”

                 One-off costs not taken into account   One-off costs not measured in          The baseline measurement does not        One-off costs – which a business is     One off costs may be taken into
                                                        baseline, but in ex-ante               cover one-off costs. However, such       required to expend to comply with       account
                                                        measurement and in yearly update       costs are taken into account in the      the information obligation, should
                                                                                               RIAs.                                    also be evenly spread over the
                                                                                                                                        period being analysed

                 Actions that would have been           Actions that would have been           Actions that would have been             Actions that would have been            Actions that would have been
                 undertaken even absent legislation     undertaken even absent legislation     undertaken even absent legislation       undertaken even absent legislation      undertaken even absent legislation
                 are taken into account                 are taken into account                 are taken into account                   are taken into account                  are taken into account
                                                                                               – 110 –

                Σ=Ρ•Q                                   Σ=Ρ•Q                                Σ=Ρ•Q                                  Σ=Ρ•Q                                  Σ=Ρ•Q
Core equation
                Price (P) = tariff x time               Price (P) = tariff x time            Price (P) = tariff x time              Price (P) = tariff x time              Price (P) = tariff x time
                Quantity (Q) = n. of businesses x       Quantity (Q) = n. of businesses x    Quantity (Q) = n. of businesses x      Quantity (Q) = n. of businesses x      Quantity (Q) = n. of businesses x
                frequency                               frequency                            frequency                              frequency                              frequency

                Focus on labour costs, with             Focus on labour costs                Focus on labour costs                  Focus on labour costs                  Where appropriate, types of costs
                extension to citizens                                                                                                                                      other than wages and overheads
                                                                                                                                                                           will be taken into account

                The SCM is applied to all regulatory    The SCM is only applied to rules     The SCM is applied to rules that       The SCM is applied to all regulatory   Ex ante application only to
Scope and       proposals and acts in force.            that cover active private Danish     cover active private and semi-         proposals and acts in force that       proposals imposing major
frequency                                               businesses (all obligatory and       private UK businesses (all             affect private businesses.             administrative requirements and/or
                                                        certain types of voluntary rules).   obligatory and voluntary rules).                                              acts identified as particularly
                                                                                                                                                                           burdensome by end users
                Applied to all administrative actions   Applied to all information           Applied to all information             Applied to all information
                imposed by a piece of legislation,      requirements imposed by a piece of   requirements imposed by a piece of     requirements imposed by a piece of     Use of thresholds to identify most
                except for exceptional (and             legislation, with threshold of 100   legislation (no minimum thresholds)    legislation (no minimum thresholds)    onerous actions
                undefined) marginal costs               hours administrative work per year

                IOs to third parties are measured       IOs to third parties are measured    IOs to third parties were measured     IOs to public authorities, employees   Review and timeline for ex ante
                                                                                             in practice, and will likely be        and customers                          assessment defined on a case-by-
                                                                                             reported separately                                                           case basis

                Periodic review (4-5 years)             Yearly update of the baseline        Baseline is kept live through RIAs     Ex-ante impact assessments planned     Periodicity of cumulative/sectoral
                                                        measurement with new / altered       and reviews of individual              in the next years (from 2007 on).      ex post assessments yet to be
                                                        regulation and ex-ante               legislation, with no expected second   Second baseline measurement in         defined.
                                                        measurements                         baseline measurement                   2010

                                                                                                                                    Different percentages set by
Overhead        25% (but also higher percentages are                                                                                particular ministries. Better
                                                        25%                                  30%                                                                           n.a.
                being used)                                                                                                         Regulation Unit only recommended
                                                                                                                                    25%

                Yes, in line with international         Yes, in line with international      Yes, in line with international        No                                     Yet to be defined
Standardised    manual                                  manual                               manual, but with shorter list of
lists                                                                                        administrative activities (7)
                                                                                               – 111 –

                  Accuracy sought mainly through       Highest level of accuracy through     High level of accuracy sought         Lower accuracy due to lack of          Use of range for administrative
Expected level    fieldwork and simulation             subdivision into data requirements    mainly through extensive fieldwork    resources and absence of               costs in ex ante impact assessments
of accuracy and                                                                              and simulation                        consultants                            to avoid spurious accuracy

data sources                                                                                                                                                              Application of the proportionality
                                                                                                                                                                          principle to establish optimal
                                                                                                                                                                          accuracy levels.

                  Use of national registers and        Use of national registers and         Use of national registers and         Use of national registers and          Use of a sample of member states
                  statistics                           statistics                            statistics. Expert panels very        statistics                             and extrapolation to EU level
                                                                                             important during the measurements

                  Main data collection methods were    Main data collection methods were     Main data collection methods were     Focus groups were the most             Estimates base on EU statistics,
                  face-to-face and telephone           face-to-face and telephone            face-to-face and telephone            frequently used data collection        standardised ratios and data
                  interviews, expert assessments and   interviews, expert assessments and    interviews, expert assessments and    method, followed by telephone          provided by the sampled member
                  business panels                      focus groups                          business panels                       interviews. Also expert assessments    states.
                                                                                                                                   and face-to-face interviews played a
                                                                                                                                   role.

Classification    Decision tree in 7 steps             Decision tree in 7 steps              Decision tree in 7 steps              Decision tree in 7 steps               Decision tree in 4 steps
of origin
                  Each public entity assesses its      Ministries assess their regulatory    Departments assess their regulatory   Ministries assess their regulatory     Application of the subsidiarity
Division of       regulatory proposals and sectoral    legislation (with involvement of      legislation (with involvement of      legislationunder the supervision of    principle: Commission assesses
responsibility    legislation (with involvement of     consultants) under the supervision    consultants) under the supervision    the Department of Regulatory           ‘upper bound costs’ and extrapolate
                  consultants) under the supervision   of the Division for Better Business   of the Better Regulation Executive    Reform and Central State               national data to EU level
                  of the IPAL and monitoring by        Regulation (DBR) in the Danish        (DBR). Consultants carried out most   Administration Reform – Better
                  Actal                                Division foe Better Business          of the 15 steps.                      Regulation Unit (Part of the Office    (The sample of) member states must
                                                       Regulation under the Ministry of                                            of the Government)                     provide data on their
                                                       Economic and Business Affairs                                                                                      implementation of EU legislation.

                                                                                                                                                                          Need for interoperable databases

                                                                                                                                                                          Need to streamline communication
                                                                                                                                                                          between Commission services and
                                                                                                                                                                          responsible national authorities.
                                                                                                        – 112 –

                   Methodological assumptions are           Use of threshold – administrative         EU legislation can be retrieved from    Decentralised approach left too        Inclusion of caveats clearly drawing
Methodological     clarified at the outset.                 activities requiring less than 1000       the database, but with some gaps.       much discretion to departments,        attention to the underlying
features/caveats                                            hours yearly are not measured.                                                    with negative impact on accuracy       assumptions and their effect on the
                                                                                                                                                                                     accuracy of the assessment.
                   No standard interview guide was          No standard interview guide was           Analysis was “trial and error”, and     No interview guide was used.
                   used.                                    used.                                     excessively costly.

                   The Dutch database does not allow        Collection of qualitative information     Use of expert assessment in line        No consultant was hired for lack of
                   for tracing back the individual piece    is useful for identifying irritation      with the proportionality principle,     budget resources.
                   of EU legislation                        burdens and areas for                     with potential shortcomings in
                                                            simplification. Of course, it requires    terms of accuracy                       No standardised list of IOs was
                                                            interviews and focus groups, not                                                  used
                                                            direct assessment.                        Methodology used in ex post
                                                                                                      measurement is slightly different       No central standard for the
                                                                                                      from the one used for ex ante RIAs      normally efficient business was set

                   3-5 dedicated and approx €300,000        Overall budget (for consultants)          Identification of the pieces of         Overall budget not available           14-40 hours of work over 4-24 weeks
Workload and       per ministry                             approx € 2 million, which includes        legislation and baseline                (decentralised approach, no project-   per ex ante assessment
cost                                                        pilot measurements, baseline and          measurement are expected to cost        orientated budgeting)
                                                            the first yearly update of the            around €26 million. Baseline
                   Around 60 people involved in             measurement. One ex post update-          measurement alone will cost £11.4
                   public administrations (IPAL, Actal,     measurement in a big area (e.g.           million. Organisational costs for the
                   ministries)                              annual accounts) cost about               reduction work around €5.9 million
                                                            €100.000                                  (£4 million) per year in the UK

                   In 2002, overall cost for the baseline   Equivalent of 6-7 fulltime staff in the   3-5 people employed for each            Budget: no external consultants,       1,600 hours/week per year for the
                   measurement was approximately €3         coordinating unit, equivalent of 1        department.                             most of the work done by ministries    Commission’s central policy unit(s)
                   million (done by consultants)            halftime staff member per ministry
                                                            for 8 months during the
                                                            measurement

                                                            Ex ante measurement is normally
                                                            completed within one month at
                                                            €10,000-20,000 per act.
                                         – 113 –




3.2   Priority areas for simplification

The four case studies conducted within this Pilot Project allowed us to identify a list of
policy areas that account for a substantial portion of overall administrative burdens
imposed by legislation on businesses. This list is meant to include areas that should be
awarded priority when approaching the issue of sectoral measurements. For the list to
prove useful for such purpose, a number of caveats must be expressed at the outset.
First, the results of the baseline measurements undertaken by the member states
exhibit similarities and differences as regards the areas where administrative burdens
are likely to be most significant. To be sure, priority areas for simplification in each
member state may differ depending on the industry structure and peculiar legal, social
and economic features. Member states are not homogeneous in all these dimensions: as
a consequence, the mix of administrative costs imposed on businesses and the cost
reduction potential for each state cannot be the same. This caveat applies both to the
comparison of the results obtained by the four member states analysed, and even more
importantly to the extension of the identified list to all other member states. In Section
4 below we will briefly address the issue of how to deal with the extrapolation of data
from a limited number of member states to all the EU25.
Secondly, it has to be emphasized that the evaluation of the priority areas depends on
what national governments decided to include in their measurements. In the case of
EU legislation, which falls outside the sphere of influence of national administrations,
the corresponding IOs/DRs might not have been completely measured by member
states. This is understandable, as so far the implementation of the SCM tool in these
countries was undertaken exclusively for the purpose of setting national reduction
targets, which necessarily do not include reduction of costs generated by non-national
legislation.
Thirdly, even after selecting a list of most burdensome areas, it remains difficult to
draw any conclusions as regards the reduction potential in each of these areas, since: a)
not all administrative costs are unnecessary; and b) less costly alternatives are not
always available. For this reason, the identification of a list of priority areas must be
followed by consultation with member states, in order to identify suitable proposals for
simplification of EU legislation within each of the areas. In this respect, we recommend
that simplification priorities are identified in close collaboration with national
administrations.
Finally, from a methodological viewpoint, substantial problems emerged in identifying
most burdensome areas, as each member state used a different breakdown of policy
areas when classifying burdensome IOs/DRs. A typical feature of existing national
implementations of the SCM is that IOs/DRs are attributed to ministries/departments,
and the distribution of administrative costs amongst different areas can reflect the
different division of competences between ministries/departments at national level. In
other words, different pieces of EU-legislation were compiled according to national
specific definitions.
                                         – 114 –



In summary, we adopted a ‘bottom-up’ approach in identifying priority areas for
simplification. This approach has both advantages and drawbacks. On the one hand,
we were able to identify priority areas based on actual results obtained by member
states through their baseline measurements. On the other hand, each country provided
its most burdensome areas according to the specific national definition of policy
areas/domains, which inevitably differ. Accordingly, the figures we received are not
fully comparable. In any event, when analysing available data from national
measurements, we identified some common evidence as regards most burdensome
areas. The set of priority areas was then generated through listing comparable
domains/areas as countries defined them and summing them up to priority areas. The
list of priority areas was then transmitted to the participating Better Regulation units
for validation, to verify the comparability of the compiled areas and to clarify whether
burdensome areas were left out.
When selecting priority areas for simplification, not only the number of the burden
should be considered, but also the ‘irritation factor’ on businesses – especially SMEs –
has to be taken into account. For example, the Dutch IPAL proposes to consider also
environmental legislation and licenses amongst priority areas. Table 30 below shows
the Dutch top-10 list of areas – which SMEs understand as most irritating – and their
origin.

Table 30 - Irritating areas for SMEs and their predominant origin according to IPAL

          1.   Statistics: mostly European law
          2.   Safety at the workplace: mostly European law
          3.   Tax declaration: national legislation
          4.   Personnel bookkeeping: mixed
          5.   Environmental legislation: mostly European law
          6.   Licenses: mixed
          7.   Bookkeeping for driven Km by car: national legislation
          8.   VAT: mostly European law
          9.   Repro law: national legislation
          10. Annual accounting: mostly European law



Based on all the abovementioned considerations and caveats, the key priority areas we
identified are the following:
•   Annual accounts and company law;
•   Health Protection (including animal health and zootechnics)
•   Working Environment and employment relations;
•   Fiscal Law and VAT;
                                                          – 115 –



•     Statistics127.
•     Agriculture and agricultural subsidies128;
•     Food labelling; and
•     Transport.


Importantly, a further proposal was made by the Danish Division for Better Business
Regulation: Denmark proposes to include also the financial services area. Experiences
according to this area were made through a benchmark too. Several countries seem to
exhibit significant burdens in this area through EU-legislation. In the UK, as reported
in Section 2 above, financial services were subjected to a separate measurement, which
yielded a (conservative) estimate of £440 million. Detailed data on the percentage of
administrative burdens accounted for by EU legislation in this areas are not available
for the UK.
Table 31 below provides examples of burdensome pieces of EU legislation in each of
the selected priority areas and illustrates the available information as regards the
relative percentage of total administrative costs accounted for by each area in Category
A and B in the four member states analysed.




127 The area Statistics does not show the large burden as for example Annual Accounts, but it reportedly causes
significant irritation, which can be seen as a proxy for the existence of unnecessary burdens: hence, we deem it
appropriate to include this area in the list of priority areas.
128 The Netherlands, the United Kingdom, Sweden and Denmark are working on a benchmark project on the
agricultural sector. The draft outcomes so far show significant burdens in this domain of EU-legislation. More details
are not available at this stage, but it seems advisable to include the agricultural sector in the list of priority areas for EU-
wide measurements.
            – 116 –




Table 31 – List of priority areas
– 117 –
                                                        – 118 –




3.3        Most burdensome EU directives

The results of the four measurements undertaken in the Netherlands, Denmark, the UK
and the Czech Republic allow, with some adjustment and additional work, the
identification of pieces of EU legislation that are particularly burdensome for private
enterprises. Again, the extent to which the results of the measurement can be
considered comparable and homogeneous is limited by the differences in the scope and
methodology used by the four governments in implementing the SCM.
Table 32 below contains a list of most burdensome EU directives that was compiled
according to data provided by the central coordinating units in the Netherlands,
Denmark and the Czech Republic.129 The results were validated with the help of UK
data at a later stage, as reported in the right end column. Estimated figures for some
areas are reported as ‘not available’ – in particular as regards Denmark and The
Netherlands – only due to time constraints. As emerges from the table, some directives
have been estimated as considerably burdensome in all member states. For example:
•       Council Directive 78/660/EEC of 25 July 1978 on the annual accounts of certain
        types of companies (the “Fourth Directive”) generates significant burdens both in
        Denmark (€409 million) and in the Netherlands (€1,497 million);
•       Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of
        the Member States relating to turnover taxes - Common system of value added tax:
        uniform basis of assessment (the “Sixth Directive”) causes ‘only’ €43 million of
        administrative costs in Denmark, but as high as €1,427 million in the Netherlands.
        In the UK Tax Measurement, EU Directives on VAT were found to account for
        more than £900 million.130
•       Directive 2000/13/EC on the approximation of the laws of the Member States
        relating to the labelling, presentation and advertising of foodstuffs generates €93
        million of administrative costs in Denmark, €254 million in the Czech Republic and
        €316 million in the Netherlands. This is reflected by available data in the UK.
•       Directive 89/391 of 12 June 1989 on the introduction of measures to encourage
        improvements in the health and safety of workers at work generated over €145
        million of administrative costs in Denmark.
•       Directive 92/57 of 24 June 1992 on the implementation of minimum safety and
        health requirements of temporary or mobile construction sites generated over €54
        million of administrative costs in Denmark.




129The UK BRE has not provided data on most burdensome directives, but allowed access to the database at a later
stage. As the final results will be published by the end of 2006, we do not report them in this version of the Final Report.
130   See KPMG, Administrative Burdens, HMRC Measurement Project, 20 March 2006, pp. 24-25.
                        – 119 –



Table 32 – most burdensome EU directives, cross-country
                                                            – 120 –




4 SUGGESTIONS FOR THE COMMISSION’S “ACTION
  PROGRAMME”
In the previous sections we have analysed the similarities and differences between the
SCM tools adopted by the four member states that have completed a baseline
measurement to date. We also highlighted the current differences between these
national models and the EU SCM, the model currently adopted by the European
Commission for the measurement of administrative costs stemming from a number of
new proposed legislative initiatives, which will also be applied in the upcoming Action
Programme on administrative burdens to be launched by the Commission in 2007.
The timetable for the upcoming Action Programme is shown below, in Figure 10. After
completion of this Pilot Project, The European Commission will issue a
Communication on the reduction of administrative costs, which will be followed by a
consultation process and by the launch of the Action Programme in February 2007.
Later, in April 2007 the Commission plans to launch the (partial or total) measurement
exercise. The end of the measurement exercise is scheduled by the end of 2008,
followed by the launch of cost reduction strategies.

                    Figure 10 – Timetable of the upcoming Action Programme



          2006                                     2007                                    2008


       Communication            Action                          Launch of                  Targets – action for
         on AC Cost         Programme on                    measurement and                   decision and
         Reduction           Reducing AC                    reduction exercise               implementation




           November             February       March            April                             December



                                                                                 Measurement




          • Discussion on             • Methodological           • Council
            the results of              issues                     conclusions on
            the pilot project                                      Action
                                      • Organisational             Programme
            and on targets
                                        issues
          • Launch of                                            • Targets on Low
                                      • Identification of          Hanging Fruits
            consultation on
                                        policy areas
            Low-Hanging                                          • Launch of
            Fruits and                • Identification of          measurement
            priority policy             Low-Hanging                and reduction
            areas                       Fruits                     initiative




As we already mentioned in Section 1, a number of issues still remain to be tackled for
the EU SCM to be effectively and successfully implemented in a full-scale – or at least
                                        – 121 –



multi-sectoral – measurement in combination with national models. These have been
summarised as follows.
•   Database interoperability: to ensure the interoperability of national databases on
    administrative burden and access for the Commission.
•   Country distribution: identification of weighting systems for assessing EU-wide
    costs on the basis of a limited number of national data (e.g. country distribution).
•   Accuracy: identification of the average margin of error of administrative cost
    assessments.
•   Standard ratios: identification of standard ratios for overheads, training costs and
    learning curves and for costs corresponding to normal business operation, among
    other things.
•   Thresholds: identification of specific threshold(s) below which quantification is not
    necessary (minimum thresholds for the application of the model).
•   Extension to citizens: possible adjustments of the model when assessing
    administrative costs put on citizens.
•   Guidance on borderline cases: possible difficulties to distinguish information
    obligations from the other regulatory costs and how to overcome them.
•   Standardisation of IOs and target groups: looking at possible shortcomings of the
    typologies of IOs and required actions used in the EU operational manual;
    examining the need for a typology of target groups.
•   Exchange of data: Organising optimal exchange of data between the Member States
    (including their regional authorities) and the Commission.
•   Target-setting: the issue of target-setting still needs to be addressed and agreed
    upon. Whether an overall target can be set at pan-European level for the reduction
    of administrative burdens imposed by legislation within a given timeframe is one
    of the issues that will have to be explored in the near future.
Besides these issues, the implementation of a pan-European measurement exercise will
also exhibit a number of operational problems, which have to be solved before such an
ambitious endeavour is undertaken. These are mostly related to the possibility of
communication between the EU and national administrations and databases, to the
need to adapt national models, to the division of tasks over the different phases of the
SCM tool, to target-setting issues and to institutional issues such as whether and how
to ensure that all EU institutions commit to a common cost reduction target. Therefore,
virtual networks like SINAPSE might be useful, although they cannot replace face-to-
face meetings.
One of the main objectives of this Pilot Project is to provide first suggestions and
guidance on how to proceed in the upcoming Action Programme. We proceed as
follows. Section 4.1 discusses methodological issues, by identifying different scenarios
for the implementation of the EU SCM in the Action Programme. This includes an
                                        – 122 –



identification of possible solutions for the classification of origin, possible
arrangements for the communication and interoperability between EU and national
databases, methodological problems in data collection, sampling and extrapolation,
and the application of the principle of proportionality.
Section 4.2. deals with organisational issues, such as a description of ‘who does what’
in a multi-level environment where the Commission and member states are jointly
involved in the measurement. In this section, we provide a step-by-step analysis of the
measurement process, by identifying potential problems that may emerge in the
different phases of the SCM tool when implemented in the Action Programme. This
section implicitly deals with the application of the principle of subsidiarity in the
implementation of the EU SCM.
Section 4.3 contains more operational suggestions for the upcoming sectoral
measurement, such as the scope and purpose of the upcoming measurement, the
priority areas that could be selected, alternative cost-reduction strategies, budget
allocation problems, and a list of activities that should be carried out by consultants
when preparing the measurement. We also deal with the delicate issue of setting
overall and sectoral targets for the reduction of administrative burdens in the EU25,
and provide some hints on how to involve all EU institutions in the commitment to
reach the overall/sectoral targets that will be set in the Action Programme.
Finally, Section 4.4 summarises our main findings.

4.1   Methodological issues

In Section 3, we highlighted the main similarities and differences between the national
variants of the SCM in the four countries that completed the baseline measurement to
date. Our main conclusion was that the adoption of a common theoretical framework
will certainly prove essential for the development of a pan-European cost reduction
strategy. This, in turn, implies that all countries that have not launched a measurement
exercise to date should adopt a model that shares most of the main features with those
analysed in this Pilot Project. In any event, as we have shown, 7 of the EU25 have
undertaken or plan to undertake a full baseline measurement, and other 10 member
states are carrying out at least a pilot measurement exercise in some policy areas. In
this respect, the launch of a pan-European Action Programme will imply that the
Commission takes action to ensure that remaining member states also adopt a cost
reduction strategy in the areas that will be selected. Otherwise, the goal of setting
targets at both the EU and national level would not prove attainable within the Action
Programme.
In this section, we discuss some of the pending methodological issues as identified by
the European Commission. To avoid redundancies, our discussion draws on the
description of the current EU SCM as provided above, at Section 1.7. The issues
addressed by this section include the classification of origin, achieving database
interoperability, how to collect data and identify samples of businesses, and how to
extrapolate collected data at pan-European level.
                                                     – 123 –



4.1.1 Classification of origin

An important issue in the implementation of the SCM is the classification of IOs/DRs
according to their origin. As shown in Section 2, all countries analysed – and also other
countries that have started to implement the SCM tool – adopt the ABC(D)
classification.131 Of these, two countries – the UK and Denmark – reached a more
detailed classification, by distinguishing categories A and B in three sub-categories, i.e.
“EU Directives”, “EU-Regulation” and “Other International”. On the other hand, the
EU SCM proposes a different taxonomy, which distinguishes between “International”,
“EU”, “National” and “Regional”.
A key feature of the upcoming Action Programme will be the setting of targets for cost
reduction at both EU and national level. In this respect, achieving a clear distinction
between IOs/DRs generated by EU legislation and national legislation is of utmost
importance. As the classification of origin is meant to identify IOs/DRs that fall under
the sphere of influence of a given legislator (EU, other international, national, regional),
a mistaken classification would shift the responsibility for cost reduction from one
legislator to another, thus creating potential inconsistencies and the impossibility to
tackle effectively the problem of cost reduction.
The main problems that have emerged in this Pilot Project as regards the classification
of origin can be summarised as follows:
•     The ‘simple’ ABC classification is not suitable to clearly identify IOs/DRs generated by EU
      legislation, as the latter are merged with IOs/DRs imposed by other international
      legislation. These countries have declared that non-EU international legislation is
      mostly to be considered as a residual category, accounting for less than 10% of total
      administrative costs. In the UK, however, the ‘A-other-international’ and ‘B-other-
      international’ categories seem to account for a greater share of total administrative
      costs in Categories A and B with respect to EU Regulations. In Denmark, to the
      contrary, the total figure of how much the category ‘EU other‘ constitutes of A and
      B regulation is 2,48%. In other words, a clear-cut distinction between EU and other
      international sources of legislation must be achieved if targets are to be efficiently
      set in the Action Programme. As a result, the European Commission should ensure that
      countries that still have to undertake the measurement exercise and countries – e.g. the
      Netherlands – that are approaching a second baseline measurement adopt a more detailed
      classification, at least similar to that adopted in the UK and Denmark.
•     In some cases, the distinction between Category A, B and C is difficult to establish.
      Examples from the benchmarking exercises carried out by the International SCM
      network and evidence from national databases (e.g. the UK) reveal that in many
      instances the attribution of a given IO/DR can prove difficult, leading to a
      significant degree of discretion in the classification of origin. In particular,



131The four countries analysed do not have regional legislation. Countries with regional structure that have started
implementing the SCM tool, such as Italy, have introduced a ‘Category D’ which includes IOs/DRs originated by
regional legislation.
                                                    – 124 –



      distinguishing between IOs/DRs that originate from the text of an EU Directive
      and those that arise from the national implementation of the Directive can prove
      quite difficult. The same applies to cases in which the reference to the original EU
      piece of legislation is missing in the national implementation measure. For such
      reasons, as will be clarified in more detail in section 4.2 below, the Action
      Programme should attribute to the European Commission (o its consultants) the
      task of identifying all IOs/DRs generated by the acquis communautaire, thus creating
      the ‘EU’ category of administrative costs.
•     In national models analysed, the issue of identifying Category A IOs/DRs was certainly less
      important than in the upcoming Action Programme. This is understandable, as
      Category A administrative burdens fall entirely outside the sphere of influence of
      national legislators, and thus are not included in national cost reduction targets. In
      this respect, the UK database proves particularly useful, as in practice most
      Category A burdens were actually measured and included in the database.132
      However, the availability of a benchmark database will prove useful, but not
      decisive for the EU mapping of the acquis. As observed during the Pilot Project, in
      some cases the reference to the original piece of EU legislation is missing in the UK
      database, and the distinction between A-EU-Regulation and A-EU-Directives is not
      clearly established. This does not affect at all the accuracy of the UK national
      measurement, but may prove important for a clear-cut mapping of the acquis and
      the identification of actions needed to reduce administrative costs generated by EU
      legislation in the short- or medium term.
•     The ABC(D) classification of origin does not always divide the responsibility between EU
      and national legislators clearly. This occurs mostly whenever EU pieces of legislation
      require some sort of implementation at national level, without specifying which
      measures should be adopted. This is the real ‘grey area’ between EU and national
      legislation. For example, imagine that an EU Directive introduces a control system
      on businesses that will the require some inspection and reporting activities, but
      does not specify the frequency of inspection, nor that of reporting. In this case,
      national legislators cannot avoid introducing further measures to specify how the
      new rules will be made operational at national level. However, implementation
      measures can be set at a minimum level - e.g., quarterly inspections and yearly
      reporting – or at a more burdensome level – e.g., monthly inspections and quarterly
      reporting. As some measure must be adopted by the national legislator, the former
      case cannot be considered to belong to the sphere of influence of national legislator,
      whereas the latter is the result of a national choice. However, both sets of measures
      would be classified as ‘B’.
The abovementioned problems lead us to believe that the classification of origin should
be carefully addressed by the European Commission during the preparatory phase of


132More precisely, the UK database may serve as a useful benchmark for the European Commission in mapping all the
IOs/DRs originated by the acquis for private and semi-private businesses, but not for citizens – as the UK did not
include administrative costs for citizens in its baseline measurement.
                                                                    – 125 –



the Action Programme. Figure 11 below describes the process of building what is
sometimes termed the ‘zero’ Category, or the ‘EU’ Category in the EU SCM.

                                             Figure 11 - Building the 'EU' Category
                                      Minimum                                             Minimum
                                   implementation                                      implementation


                            A                       B      C          D

                       Directive           Directive    National   Regional       EU                    National
                                                                                                             National   Regional

     Category ‘EU’
                       Regulation        Regulation


     Category
                       Other-Int’l        Other-Int’l                         International
     ‘International’




Following these considerations, some alternative options can be identified for
achieving a classification of origin which proves functional to the peculiar needs of the
upcoming Acton Programme.
•   Option 1: keeping the (detailed) ABC(D) classification as it is
    This option would prove less intrusive for member states that have already started
    measuring administrative burdens or have completed the baseline measurement.
    However, member states that have applied a simple ABC classification would have
    to re-start their measurement of category A burdens.


•   Option 2: ABC(D) classification, with Category A defined by the Commission
    Such option would imply that the Commission provides its own list of IOs/DRs to
    be included in the A Category, so that the measurement is standardised to the
    extent possible. A similar option, however, would not represent a suitable solution
    for Category B, which contains IOs/DRs that fall partly under the sphere of
    influence of the Commission. In the pan-European measurement exercise, constant
    checks for the consistency of IOs/DRs selected by member states would be needed,
    especially in Category B, to avoid double counting and cases of mistaken
    classification of administrative burdens.
    Operationally, this option would imply that:
         a) the Commission defines all Category A(EU) IOs/DRs;
         b) member states define residual category A(International) IOs/DRs;
         c) member states measure categories A, B and C.
    This division of tasks might create inconsistencies in the organisation of the
    measurement at pan-European level. In particular, this option can create the
    problem of identifying IOs/DRs that correspond to the minimum implementation of
    an EU piece of legislation, and those that go beyond the minimum level of
    implementation.
                                         – 126 –




•   Option 3: adopting the EU SCM’s four categories, with definition of Category
               ‘EU’ by member states
    In this case, the European Commission would rely on the results of national
    measurements to build the category ‘zero’ or ‘EU’. This option, however, would
    exhibit at once:: a) a lack of standardisation, since category zero would be built
    through the input of member states, which may classify IOs/DRs differently
    according to their peculiar implementation of EU legislation and to the decisions on
    classification taken by ministries and consultants; and b) costs for member states that
    have adopted the ABC(D) classification, as they would have to update their
    original databases by changing the current classification into the EU one, and to
    formulate assumptions on the minimum efficient level of implementation of EU
    directives and regulations, in order to divide responsibilities between the EU and
    national sphere of influence.


•   Option 4: adopting the EU SCM’s four categories, with definition of the ‘EU’
               category by the Commission
    Under this scenario, the identification of Category ‘EU’ would be undertaken at EU
    level, with the help of consultants. The main activities to be carried out at EU level
    would be: a) the analysis the acquis and the identification of IOs/DRs directly
    generated by prescription of current EU legislation; and b) assumptions on the
    ‘minimum efficient level’ of implementation of those pieces of EU legislation that
    do not specify them directly. Such assumptions should then be validated by
    member states before a final list of IOs/DRs under the ‘EU’ category is reached.


•   Option 5: adopting the EU SCM’s four categories, with definition and
             measurement of the ‘EU’ category by the Commission
    Under this scenario, the Commission would have to undertake the measurement of
    the IOs/DRs included in Category ‘EU’. This option would produce the following
    consequences: a) high standardisation, as the measurement would be completed at
    central level; b) very high costs for the European Commission, as the measurement
    exercise may prove prohibitively resource-intensive, and was estimated in the
    magnitude of 100 million; c) redundancies in the measurement with respect to national
    measurements, possibly resulting in duplication of interviews, focus groups, etc.
    For this reason, this options seems less desirable than option 4.
Table 33 below compares the five options identified.
                                                   – 127 –



                 Table 33 – Options available for the classification of origin

Option                                        Costs for EU           Costs for MS           Standardisation
1 – Status quo                                        low                    low                    none

2 – Commission defines ‘A’                          medium                   low                    low

3 – Four categories, MS define ‘EU’                   low                    high                   none

4 - Four categories, EC defines ‘EU’                medium                medium                    high

5 - Four categories, EC measures ‘EU’                 high                   low                    high



In summary, option 4 seems to allow for the maximum standardisation, which is
highly needed in light of the upcoming Action Programme, and divides the cost of the
measurement more equally between the EU and national level. This option would
imply that significant costs are borne the EU level, as the identification of category ‘EU’
would require both a screening of the acquis and assumptions on the minimum level of
implementation of EU pieces of legislation. In achieving this results, as already
recalled, Commission DGs (or consultants) might rely on databases such as those
developed in the UK after the baseline measurement, although this source does not
always allow to identify regulatory origin in an uncontroversial way in Categories A
and B.
On the other hand, member states would then be able to:
•     easily define Category B as a residual category starting from the EU identification
      of the ‘EU’ category;
•     easily identify instances of gold-plating; and
•     maintain their classification of origin for part of category B, category C and – where
      existing – D.133
In this respect, it must be recalled that member states so far have not committed to
undertake the measurement at national level, but only to provide the Commission with
all available data and information needed to perform the measurement at central level.
In other words, there is still no basis for selecting option 4 in official documents
approved at Council level. In case such an agreement proves impossible to reach, a mix
between options 4 and 5 would seem advisable, whereas the Commission obtains or
reuses data from member states that have already measured given IOs and performs
the measurement (or extrapolates) directly in countries where the measurement has
not yet been undertaken.




133Member states would then be free to decide whether to keep the distinction between B and C or to merge the two
categories into the ‘National’ one, as foreseen by the EU SCM.
                                          – 128 –



4.1.2 Database interoperability

A related issue that might emerge during the EU-wide measurement exercise is how to
ensure that the EU and national databases are made interoperable. This issue would be
adequately tackled if the Commission decides to carry out the task of defining the EU
category (option 4 above). In this case, the Commission would directly provide
member states with a list of IOs/DRs that should be considered under its sphere of
influence.
However, the problem of interoperability would emerge at a later stage, when the list
of IOs/DRs belonging to the ‘EU’ category is actually measured. At this stage, the
responsibility for the measurement exercise should be carefully coordinated and highly
standardised. As the Action Programme will imply the setting of targets both for the
EU and member states, measurement should be undertaken at both levels. This creates
a further trade-off: responsibility for the measurement – including interviews, business
panels, focus groups etc. – should be allocated either at EU or at national level.
If the measurement is undertaken at EU level (option 5 above), the problem of
interoperability would be partly solved, as the EU would carry out its own
measurement in a fully independent and autonomous way. This option, however,
would create significant problems, such as:
•   Redundancies in the measurement exercise – e.g. duplication of interviews, focus
    groups, etc.
•   Possible inconsistencies in the identification of the ‘normally efficient business’, let
    aside the measurement for citizens;
•   Possible inconsistencies between the EU measurement and national measurements
    – e.g. double counting of IOs/DRs or, at the other extreme, failure to measure
    borderline IOs/DRs which are considered ‘national’ by the Commission, and ‘EU’
    by member states.
For such reason, we confirm our suggestion that the measurement of the ‘EU’ category
would have to be carried out by member states and coordinated by the Commission or its
consultants in order to avoid inconsistencies in the procedure. This option has the
further advantage of saving the efforts of those member states that have completed the
baseline measurement so far, provided that they have identified IOs/DRs originated
by EU legislation in a consistent way. Those member states that are planning to launch
a full or sectoral measurement in the near future should then adapt their own models
according to the peculiarities of the model adopted in the upcoming Action
Programme.
A further related issue is that of the so-called ‘table of concordance’ between EU and
national legislation. The functioning and operation of the forthcoming EU database
would obviously be smoother, where a clear table of concordance between EU and
                                                       – 129 –



national legislation could be available.134 In order to be effectively implemented in the
forthcoming Action Programme, such tables would need to clearly indicate:
•     What pieces of national legislation implement what piece of EU legislation;
•     Which parts of national laws/regulations – articles, sections, etc. – are the direct
      effect of transposition of EU Regulations/Directives, and of which EU
      Regulations/Directives.
•     A full correspondence between IOs/DRs originated by EU legislation and their
      location in national legislation.
There are two main options available to reach this result, namely a ‘bottom-up’ and a
‘top-down’ approach.
•     Bottom-up approach: Member States provide the table of concordance, after a
      careful screening of their own legislation. This basically requires that all member
      states undertake such exercise, which is normally part of the implementation of the
      SCM tool, with some further complication as regards the classification of origin.135
•     Top-down approach: the Commission provides a list of IOs/DRs generated by the
      acquis, whereas member states trace them, flag them and classify them as ‘EU’ in
      the national implementation of the SCM tool. The table of concordance is
      spontaneously created at the end of the exercise.
Also in light of our conclusions in the previous section on the classification of origin,
we believe that a top-down approach would ensure a greater level of consistency and a
clearer division of responsibilities between the EU and member states.
Finally, an issue that is often raised is whether it would be desirable to develop a pan-
European database of administrative burdens, encompassing figures on administrative
burdens from all the EU25. Representatives of national coordinating units – in
particular the Danish Division for Better Business Regulation – were rather sceptical on
this perspective. An application of the proportionality principle in this case would
rather suggest that the Commission initially focuses on a limited number of countries
when collecting data to reach estimates of total administrative burdens in given
sectors. As will be explained below, we suggest that the Commission works on the
pan-European database at a later stage, when (and if) all member states will have
launched full or at least sectoral measurements based on the SCM tool.




134Accordingly, for the purposes of this report, concordance tables should therefore not be confused with the ‘light table
of concordance’ referred to in the Commission Staff Working Document, Annex to the Communication on Better
Regulation for Growth and Jobs in the European Union, ‘Minimising Administrative Costs Imposed by Legislation’,
SEC(2005)175, p. 13. In order to fully implement the SCM tool in a multi-level measurement exercise, the concordance
table would have to be way more detailed that that included in the reporting sheet of the EU SCM, as it would have to
be broken down at IO level.
135In most cases, national databases analysed do not always provide a reference to the original piece of EU legislation,
both for Category A and B.
                                                 – 130 –



4.1.3 Sampling, data collection, extrapolation

The SCM tool was initially conceived and implemented at national level. When
implemented at EU level, some of its major phases require a careful adaptation. In
particular, the identification and segmentation of the population, the identification of
the normally efficient business (or ‘administration’, or ‘citizen’), the choice of a
representative sample, the use of data collection methods and the extrapolation at EU
level become particularly delicate.
In this section, for sake of simplicity, let us assume that option 4 in Section 4.1.3 and the
‘top-down approach’ in Section 4.1.4 have been selected. This means that the
Commission identifies Category ‘EU’ and member states carry out the measurement at
national level with the help of their consultants under the supervision and
coordination of the European Commission. In this case, after identifying the IOs/DRs
to be measured, member states should look at the population affected by those
IOs/DRs by identifying the type of businesses affected, possible segmentation
arrangements and the normally efficient firms. This can be achieved with the help of
consultants which follow the methodological instructions contained in the
international SCM manual and incorporated in the EU SCM operational manual, and
also on the basis of national baseline measurements already completed by member
states.
One important feature of this procedural arrangement is that ‘normally efficient
entities’ may be defined differently by member states. As a result, there would be no need
to define a single ‘normally efficient entity’ for the whole EU25 – an exercise that would
otherwise prove particularly delicate. A possible shortcoming is that the overall
calculation of administrative costs and their distribution by country may be affected by
differences in the assumptions adopted at nationals level as to what constitutes a
normally efficient entity. For this reasons, we suggest that the European Commission
(or its consultants) strongly coordinates and supervise this procedure, or alternatively
provides a preliminary estimate of time and other costs needed to comply with
IOs/DRs in the EU category, which member states are then called to validate by
presenting the results of their interviews, focus groups, panels or expert assessments.
Such ‘reversal of the burden of proof’ might help achieving a smoother coordination
between the EU and national level when undertaking the measurement exercise.
In addition, we consider it quite unlikely that the Commission ends up relying on all
the EU25 when collecting estimates of category ‘EU’. If this were the case,
extrapolation to the EU level would result automatically by summing up the results of
extrapolations to the national level. However, this requires that member states carry
out their measurement simultaneously, at least in the priority areas that will be
selected.136 A less burdensome and ambitious option would imply that the Commission
relies on a limited number of member states, and then extrapolates the results at EU-
wide level. For example, the Dutch CPB has provided an estimate of total


136   Member states that have already measured
                                                  – 131 –



administrative burdens in the EU by extrapolating the Dutch figure and using cost
differences to reach an identical standard firm in each Member State.

                           Table 34 – Example of country distribution (CPB, 2006)




Possible parameters that could be used for extrapolating data to the EU level using
evidence available from some member states differ depending on the type of policy
area and type of IOs/DRs under analysis. A recent example of extrapolation exercise
carried out by the European Commission services can be found in the “Impact
Assessment of the Thematic Strategy on the Sustainable Use of Pesticides”.137 In the
recent “Impact Assessment of the Thematic Strategy on Soil Protection”, to the
contrary, extrapolation was not considered possible in a number of instances due to
lack or reliable data.138 We suggest that, in case data from a limited sub-set of EU
member states is available, the Commission proceeds with extrapolation in much the
same way, and then asks member states (or, as will be proposed below, to the
International SCM Network) to validate the findings.
Finally, in case the measurement exercise has to be undertaken at EU level (option 5
above), data collection methods commonly used at national level – e.g. face-to-face
interviews – may prove too costly. The UK experience suggests that business panels
can prove particularly cost-effective in providing reliable data estimates. At EU level,
use of the European Business Test Panel might prove particularly useful. The EBTP is
composed of around 3.600 companies of different sizes and sectors located in all EU
Member States, which reply to online questionnaires sent to them by the European
Commission on a regular basis. In other instances, industry and trade associations may
be consulted directly through telephone or even face-to-face interviews. Another
important lesson learnt from the UK experience is that a careful implementation of the
principle of proportionate analysis would be needed to carry out the measurement at
EU level. As explained in the previous sections, the results of national measurements
completed to date highlight that often a very small percentage of the IOs/DRs
identified accounts for a very large percentage of the resulting administrative costs. For
example, the top 20 IOs/DRs originated by EU Regulations in the UK represent 95.46%
of total administrative costs originated by EU Regulations, and 94.33% of net costs.
This suggests that for a large portion of IOs/DRs, direct expert assessment may be a
practical and efficient solution. As reported above in Section 2.3, direct assessment was
used in the UK for 55.7% ot IOs/DRs, accounting for 7.4% of total administrative costs.
In summary, it is fair to conclude that problems of data collection and sampling may
become almost insurmountable under option 5 – i.e., if the Commission doe not only


137   COM(2006)373 Final, 12 July 2006.
138   COM(2006)231 Final, 22 September 2006.
                                          – 132 –



have to define category ‘EU’, but also has to measure it. Alternatively, if option 4 is
chosen, these methodological problems would mostly be related to careful selection of
representative member states and to the extrapolation of results. On these two issues,
we suggest that:
•     Constant collaboration with the International SCM Network is ensured when
      selecting representative member states; and
•     The Commission continues its research on extrapolation criteria, as are currently
      being used in ex ante impact assessment.
These two suggestions, in our opinion, would respect the principle of proportionality
and subsidiarity, leaving member states with a task they are supposed to perform
better – identifying the costs, time, population, segments and ‘normally efficient entity’
according to national peculiarities – and awarding the Commission the role of defining
the ‘rules of the game’ and extrapolating data to the EU level at the end of the
measurement.

4.1.4 Level of detail

Another important issue to be tackled before proceeding with the Action Programme is
the level of accuracy and detail that the EU measurement should reach. In the case
studies illustrated in Section 2, we highlighted that countries that have broken down
IOs into data requirements (e.g. Denmark) have reached a higher level of accuracy.
However, observation of the UK database has also revealed that the correspondence
between IOs and DRs was almost one-to-one in the measurement. Also the Danish
Division for Better Business Regulation confirmed that the higher level of detail
reached in Denmark would be hardly replicable in larger countries. For such reasons,
we suggest that the Commission focuses on IOs and only subdivides IOs into DRs when there is
sufficient evidence that a single IO requires a more detailed breakdown.

4.2     Organisational/Institutional issues
In this section we address the most relevant institutional and organisational
arrangements that appear necessary in light of the forthcoming Action Programme.
The most important issues are, in our opinion, the identification of the scope and
purpose of the measurement exercise, the division of tasks between the EU and
national level, and the involvement of other EU institutions in the operation of the EU
SCM and in the commitment to reach the targets that will be set within the Action
Programme.

4.2.1 Scope and purpose
As we already mentioned in Sections 1 and 3, the EU SCM was conceived with a very
ambitious scope, i.e. measuring administrative burdens for private and semi-private
enterprises, but also for citizens and administrations. This feature makes the scope of
the EU SCM broader than that of available national models: as a matter of fact, only in
                                         – 133 –



the Netherlands the extension to citizens was introduced, and in none of the four
countries the costs borne by public administrations was included in the measurement.
Moreover, in the Netherlands the (simple)ABC classification was used, and in the
Dutch database tracing back the original piece of EU legislation is not always possible.
This, in turn, also means that the Commission will not be able to rely on any existing
model when identifying the IOs/DRs for citizens and public administrations. In this
respect, we suggest that the Action Programme initially focuses on private and semi-private
enterprises, whereas administrative costs for citizens and public administrations may be
considered at a later stage and within the ex ante impact assessment of new pieces of
legislation. The Dutch experience also suggests that the measurement of administrative
burdens for citizens should be kept separate from that regarding businesses.

4.2.2 ‘Who should do what’ in the Action Programme

In the previous sections we have formulated some initial suggestions on how to
approach the upcoming measurement exercise at EU level. In this section, we provide a
step-by-step analysis of the activities that should be performed by the European
Commission, by Member States and by consultants. Table 35 below shows a possible
allocation of tasks, by taking the Danish model as a reference (the columns on the
right) and by assuming that the EU and national measurement take place
simultaneously. Of course, the table must be considered as a mere example.
                                        – 134 –



        Table 35 – Example: ‘who should do what’ in the Action Programme




As shown in the table:
•   in ‘phase 0’ Commission DGs and their consultant(s) should identify the business
    related regulation to be included in the analysis. This might imply the selection of
    priority areas and the identification of DGs that should be involved in the Action
    Programme. Such process is very similar to what occurs at member state level,
    where some of the ministries are often not included in the measurement as they do
    not produce a significant amount of business-related regulation.
•   In step 1a, Commission DGs and their consultant(s) should map the acquis in order
    to define IOs/DRs to be included in category ‘EU’, including those representing the
    minimum efficient implementation of the pieces of EU legislation analysed.
•   In step 1b, central units, ministries and consultants would be identifying the
    IOs/DRs generated by other international and national legislation. This activity
    should ideally be undertaken after the Commission has identified category ‘EU’, so
    that member states can define their own category ‘B’ as a residual category under
    the sphere of influence of national government.
                                                          – 135 –



•       In step 1c, the Commission’s definition of category ‘EU’ should be validated by
        member states, possibly by ministries. Involvement of central coordinating units
        would also be essential, possibly through the International SCM Network.
•       In step 2, central units and consultants should deal with demarcation both at the
        EU and national level (for non-EU categories).
•       In subsequent steps, (a limited number of) member states should measure both
        category ‘EU’ and all other categories, exactly as they would have done absent the
        Action Programme.139 However, the identification of cost parameters for ‘EU’
        IOs/DRs and the preparation of the interview guide should be be carried out in
        collaboration with the Commission’s consultant.
•       In step 9, ministries (in our representative model, i.e. Denmark) and Commission
        DGs (only for the ‘EU’ category) should deal with the expert review of previous
        steps.
•       During phase 2, EU consultants should participate to step 11 (Completion and
        standardisation of time/resource for each segment by activity), whereas
        Commission DGs should deal with the expert review of previous steps (only for the
        ‘EU’ category).
•       In phase 3, national consultants extrapolate data to national level, whereas EU
        consultants deal with aggregation and extrapolation of data t the EU level.
        Commission DGs and their consultants then report results in the EU database,
        whereas ministries and national consultants report their results in national
        databases.

4.2.3 Institutional communication issues
Another issue that was included in the areas for optimisation of the EU SCM model is
the need to ensure constant collaboration between the Commission and competent
administrations in member states at national and regional level. The implementation of
the Action Programme will require that the interface between activities performed at
Commission level and those carried out by member states are efficiently coordinated.
In this respect, the following suggestions can be formulated, under the assumption that
the options highlighted above are selected by the Commission:
•       During the sectoral measurement that will be launched, the Commission will need to
        secure that representatives of central coordinating units at national level are available to
        validate the results of phase 1b, thus reaching an agreement on the list of IOs/DRs
        that should be considered as ‘EU’.
•       When performing a sectoral measurement, the competent Commission DG and
        competent ministries at national level should reach an agreement on the population, the




139   The only difference is that they would have to measure all the ‘EU’ and ‘Other international’ IOs/DRs identified.
                                        – 136 –



    sampling, data collection methods and cost parameters. This agreement should lead to
    the development of standard ratios overtime.
•   In addition, in this same phase the Commission would need to ensure that national
    governments can produce reliable data in a timely and precise manner, for example
    consulting offices of national statistics and other official sources of data.
•   After the measurement, national ministries should validate the results of the
    extrapolation to EU level carried out by the DGs with the help of consultants.
To the contrary, if the Commission ultimately has to measure administrative costs
directly, but using data provided by (a limited number of) member states, the degree of
coordination and communication would prove more challenging.
Moreover, effective communication between the Commission and member states could
be achieved – at least for those phases that require communication between central
coordinating units and the Commission – by achieving constant collaboration between the
Commission and the International SCM Network, which gathers representatives of central
coordinating units of those governments that have already officially adopted the SCM
tool for cost reduction strategies. Such communication has proven to be quite effective
already during this Pilot Project, which could strongly rely on data provided by the
four member states analysed. In the past few months, a growing number of EU
member states joined the SCM Network. “Institutionalising” such collaboration would
also imply that, as the participation of EU member states to the SCM Network becomes
more numerous, the Commission would consequently be able to rely on a growing
number of national counterparts when performing the various phases of the EU SCM.
Finally, use of web-based tools such as the newborn SINAPSE would prove essential to
speed up consultation processes between the Commission and representatives of
central coordinating units at national level. This tool can also enable constant
confrontation on the development of standard ratios and parameters, e.g. overheads,
time estimates, etc.

4.2.4 Involving all EU institutions
As already recalled at the beginning of this section, the forthcoming EU Action
Programme will imply the formulation of cost reduction strategies and the setting of
overall/sectoral targets for reducing administrative costs within a given timeframe. We
will discuss this issue in more detail below, at Section 4.3.2. Whatever option is chosen
for target-setting, no target can be achieved at EU level if only the Commission
commits to successfully implement the cost reduction strategy. As a matter of fact,
implementing a cost-reduction strategy will certainly imply a rule-making effort at EU
level, aimed at amending and/or repealing particularly burdensome pieces of
legislation. Thus, targets can be achieved only if the European Parliament and the
Council also commit to cooperate in achieving the target when deciding on proposed
new pieces of legislation within the co-decision procedure.
                                                    – 137 –



The most straightforward way to achieve this result would be to amend the current
Inter-Institutional Agreement on Better Lawmaking to include targets set within the
Action Programme. The Inter-Institutional Agreement implies, i.a., that all EU
institutions share the same impact assessment methodology: as the EU SCM has been
integrated as an annex to the Commission’s Impact Assessment Guidelines, it is fair to
state that the EU SCM is already part of the Inter-Institutional Agreement. However,
targets are not.
In this respect, we suggest that the Commission, the Parliament and the Council reach
a new Inter-Institutional Agreement, in which all institutions commit:
•     To formulate their decisions – including initiatives by the Commission and
      amendments by the Parliament and the Council – by awarding priority to the
      targets set within the Action Programme, whenever they are called to decide over
      legislative proposals that result from the full or sectoral measurement that will be
      undertaken.
•     To explicitly share the EU SCM methodology, and commit to identify the IOs/DRs
      resulting from legislative initiatives and/or major amendments within the ex ante
      Impact Assessment procedure.
•     Not to approve any new proposal that is expected to increase administrative
      burdens.
A good timing for this agreement would be March 2007, when the Council will issue its
conclusions on the proposed Action Programme.140

4.3     Operational suggestions

Apart from addressing methodological and organisational issues, this Pilot Project also
dealt with operational issues, such as priority areas that could be selected for sectoral
measurement and evidence of target-setting at national level. In this section we offer
suggestions on how to use the results illustrated in Section 3 in the upcoming Action
Programme.

4.3.1 Priority areas
An important result of this Pilot Project is that policy areas identified by the four
member states analysed coincide to a large extent. The areas that account for the lion’s
share of administrative burdens in the surveyed member states are the following:
•     Annual accounts and company law;
•     Health Protection (including animal health and zootechnics)



140 It has been highlighted that the need to reach a wholly new Inter-Institutional Agreement would prove too
‘burdensome’ and lengthy. A possible alternative would imply that the Commission proposes an overall cost reduction
target to be endorsed by the European Council in 2007. This, however, would not ensure the involvement of the
European Parliament in pursuing the achievement of the announced reduction target.
                                            – 138 –



•   Working Environment and employment relations;
•   Fiscal Law and VAT;
•   Statistics;
•   Agriculture and agricultural subsidies;
•   Food labelling; and
•   Transport.
The circumstance that national priority areas point at the same direction is important,
but should be validated by the upcoming list of low-hanging fruits. As a matter of fact,
gathering information about policy areas that account for the largest portion of
administrative burdens is not sufficient to conclude that these areas are the ones that
exhibit the largest reduction potential. Administrative burdens are, to be sure, not
always superfluous, and even most burdensome areas might not lead to identifying
suitable alternatives that would allow for abating administrative costs without
compromising the effectiveness and efficiency of regulatory measures. However, if
member states indicate low hanging fruits in the same areas, this would imply that
these areas can be considered as candidates for successful sectoral measurements and
cost reduction strategies.
In this respect, we suggest that the Commission initially selects a sustainable number of
policy areas (e.g. 8-10) that can be considered as particularly burdensome and characterised by a
substantial reduction potential, and subjects them to sectoral measurement. The selected areas
should be subjected to consultation in the preparatory phase of the Action Programme
(October 2006-February 2007), to elicit proposals for simplification by member states
and other stakeholders. As confirmed by available evidence in the four member states
analysed, focusing on the ten most burdensome areas would mean, for the
Commission, targeting at least 70% of the overall administrative burdens generated by
EU and national legislation on businesses. Areas such as “Annual accounts and
company law”, “Health Protection”, “Working Environment and employment
relations” and “Fiscal Law and VAT” were found to create administrative burdens for
businesses in Categories A, B and C. An in-depth sectoral measurement in these areas
would likely allow the Commission to achieve results in a relatively short timeframe,
provided that the measurement is organised effectively.
Furthermore, for reasons already stated in the previous sections, we suggest that
administrative costs imposed on businesses in remaining policy areas and administrative
burdens for citizens and public administrations are addressed separately, possibly at a later
stage. This suggestion is supported also by evidence reported in Table 4 above,
showing that some of the member states that have not started a full-scale measurement
have targeted some or all of these priority areas as particularly burdensome. Focusing
on priority areas would, thus, allow the Commission to rely on a larger number of
countries that are collecting data on administrative burdens in those areas.
                                           – 139 –



4.3.2 Target-setting

Three of the four countries analysed have opted for setting an overall, ‘political’ target
before undertaking the baseline measurement. The advantages of setting an overall
target before the measurement are related to the important role that a strong political
input plays in all better regulation initiatives. Not surprisingly, strong political input is
included in the OECD principles of regulatory reform, as it creates a virtuous effect on
accountability and ensures that monitoring and achievement of results takes place at
all levels of government.
At EU level, strong political commitment towards better regulation exists within the
European Commission since many years. The extent to which an overall target can be
set depends also on whether other EU institutions can commit to achieving a cost
reduction target within a given timeframe. If inter-institutional agreement is reached on
this issue, then we strongly recommend that the Commission announces a target in April 2007.
As regards the magnitude of the target to be set, countries that have set an overall
target have chosen a target of 25% (the Netherlands and Denmark) or a more
conservative target of 20% (the Czech Republic). We suggest that the Commission
decides on the magnitude of the target to be set after collecting simplification proposals
during the consultation phase (October 2006-February 2007) and announces targets in
April 2007. If the Commission receives a sufficient number of simplification proposals
in the priority areas, then a 20% target could be attainable within a 5-year timeframe.
An important issue is differentiating between overall targets and sectoral targets. If the
Commission opts for a full-scale measurement in the Action Programme, then overall targets
should be coupled by sectoral targets after the measurement has been carried out. These targets
could be averaged at, e.g., 20%, but differentiated between involved DGs according to
the estimated cost reduction potential (expressed in percentage). This is the approach
that was adopted in the Netherlands and – although with an expected lower margin of
differentiation – in the UK.
However, we have suggested that the Commission award priorities to a selected
number of policy areas when carrying out the measurement. Setting only sectoral targets
ex ante is not inconsistent with the setting of an overall political target. As evidence
gathered from the four member states analysed shows that the top 10 areas account for
at least 70% of administrative burdens for businesses, setting a 25% reduction target in
those areas would automatically imply that at least a 17.5% overall cost reduction
target has been set.
We also assume that the Action Programme will imply the setting of targets for
member states. If this is the case, the magnitude of the target to be set is a delicate
issue. It is important to note, in this respect, that the four countries analysed are not
expected to belong to the group of EU countries with the highest percentage of
administrative burdens on GDP. As confirmed by available evidence, such as the study
carried out by Kox (2005) on 19 member states, the UK, Denmark, the Czech Republic
and the Netherlands are all located below the average percentage found by the study.
Table 36 below reports the findings of the study, which used extrapolation criteria
                                                 – 140 –



based on the results of a study by Djankov et al. (2002) on procedures of setting up a
new firm in a selected sample of states.

Table 36 – Estimated total administrative burden for EU countries, % of GDP, 2003




      Source: Kox (2005)



Based on these results, it would appear possible to set a 25% target for all member
states. But further issues would need to be taken into account:
•     Some countries – e.g. the Netherlands and Denmark – have already undertaken
      efforts to reduce administrative burdens at national level. Imposing the same target
      for the years to come might thus prove discriminatory.141
•     Some countries might not be able to count on sufficient budget resources to
      undertake a thorough measurement in the selected sectors. This also means that the




141One possibility would be that the Commission sets sectoral targets for member states, which can be
reduced only if member states prove that they already achieved results in a specific area. This ‘reversal of
the burden of proof’ would require member states to submit evidence and information, which would also
lead to collecting best practices.
                                               – 141 –



        potential for implementing cost reduction strategies in these countries might be
        limited.
Accordingly, we suggest that the Commission should set ex ante its target for reducing the
administrative cost of EU legislation in the selected priority areas, and sets a more conservative
target for member states within the given timeframe (e.g. 5 years).
Alternatively, it was suggested that the Commission choose a target only for
Categories A and B, then leaving it to Member States to decide whether to announce a
target for national and regional legislation. However, we consider this solution to
exhibit at least three problems:
  a) Need for commitment also at member state level: the Commission would still
        have to rely on actions taken by Member States, as Category B contains IOs/DRs
        falling under the sphere of influence of EU, international and national legislators:
        accordingly, announcing a target on Category B would still imply a similar
        commitment by member states.
  b) Weak political commitment: the overall target announced would not cover all
        administrative burdens faced by businesses in their everyday life, and would thus
        provide a much weaker signal in terms of commitment towards better regulation
        and competitiveness at pan-European level. Available evidence suggests that
        announcing a 25% reduction target on (all IOs/DRs included in) Categories A and
        B would imply committing to lift the burdens on businesses only by 10-14%;
  c) Different taxonomies: in light of the taxonomy adopted by the EU SCM tool, the
        Commission would rather have to announce a reduction target for Category ‘EU’.
        This, in turn, would imply that only the minimum implementation of EU pieces of
        legislation is included in the administrative burdens to be measured and subject to
        reduction proposals. In other words, the expected reduction target would
        probably represent less than 10% of total administrative burdens faced by EU
        businesses.

4.3.3 Periodic reviews v. ‘live’ baseline and the role of Impact Assessment

Of the four member states analysed, the Netherlands and the Czech Republic chose to
rely on periodic reviews of the baseline – i.e., a second round of measurement is
foreseen. On the other hand, Denmark opted for yearly updates of the baseline. Finally,
the UK Manual explains why the UK did not opt for a second measurement142:
            As the sample size is very small it is unlikely that any two samples drawn at
            different points in time would actually give comparable results. The point of a
            second measurement would be to compare results with the initial measurement.
            Therefore this makes conducting such an exercise of questionable value,
            especially given the high financial and resource costs of doing a measurement.
            Therefore the current plan for the UK is to carefully monitor the quality of the


142   See UK Manual, at p. 30.
                                             – 142 –



         flow data and use the database system to continually calculate the updated
         baseline to allow progress to be judged as described in the previous section. In
         addition there may be some scope for research to quality check the data.
Another reason why the UK government opted for a ‘live’ baseline is that the UK –
more than the other three countries analysed – has a consolidated RIA system since
several years. With an established an pervasive RIA system, constantly updating the
baseline simply requires that the SCM tool is fully integrated with the RIA. The
European Commission has adopted a similar approach by integrating its operational
manual in the IA guidelines and making the EU SCM operational at first in the ex ante
impact assessment procedure.
As a result, we consider that keeping a ‘live’ baseline would prove a suitable option at EU
level, especially if the Commission decides to award priority to selected policy areas.
The Commission is succeeding in integrating ex ante impact assessment in its Strategic
Planning and Programming Cycle, requiring DGs to assess the economic, social and
environmental impact of major new legislative proposals. If application of the EU SCM
becomes pervasive in the Commission’s IA system, then keeping a ‘live’ baseline is a
feasible option. If compared with the current model, the upcoming Action Programme
would also require that Commission DGs identify the IOs/DRs introduced and/or
repealed by new legislative proposals while performing the ex ante Impact Assessment.
From this standpoint, the Secretariat General (or DG ENTR) should be awarded the
power to require an identification of the IOs/DRs and an assessment of the
corresponding cost: otherwise, the baseline would soon become obsolete.
Importantly, if the Commission decides to maintain its current classification of origin,
the identification of IOs/DRs in impact assessment should also include an assessment of the
‘minimum level of implementation’, both for proposed directives and – to a lesser extent –
proposed regulations.

4.4     Summary of main findings

In this section, we have identified some suggestions for the upcoming Commission
Action Programme, with specific respect to the practical implementation of the EU
SCM in combination with existing and future national SCM variants. In particular, we
reached the following findings.
•     Based on national experiences and the similarities between the EU SCM and
      national SCM variants, launching a pan-European Action Programme is feasible,
      although challenging.
•     The issue of database interoperability and institutional communication between the
      EU and member states would be more easily solved if the Commission identifies all
      the IOs/DRs generated by the acquis, plus those that represent the ‘minimum
      efficient implementation’ of pieces of EU legislation. This activity – which leads to
      defining the ‘EU’ category (or category ’zero’) should be carried out by consultants
      in the first months of the Action Programme. Once the Commission has published
      a list of IOs/DRs, member states that already have built a database should update
                                        – 143 –



    it accordingly. Those that do not have a database should design it in order to allow
    for interoperability – i.e. by ensuring that all the IOs defined by the Commission
    are flagged and measured.
•   With this arrangement, member states will be called to validate Category ‘EU’ and
    then define their category B in a residual way, thus also identifying instances of
    gold-plating.
•   Member states are more suited to measure IOs/DRs provided by the Commission
    as ‘EU’. As most member states will have to carry out their own measurement
    anyway, such an arrangement increases economies of scope and avoids
    redundancies such as, e.g., double interviews or duplication of focus groups, etc.
    Depending on the number of countries that participate to the measurement, the
    Commission will then have to use a country distribution to extrapolate the results
    to the EU level. Such exercise has already been undertaken in recent Commission
    RIAs that integrate the SCM tool.
•   If the Commission defines category ‘EU’, there would be no need to invest efforts
    and resources to build a ‘table of concordance’ between EU and national legislation
    during the preparatory phase of the measurement. At the end of the measurement,
    if member states have flagged the origin of – and the national references for – all
    IOs defined by the Commission as ‘EU’, the table of concordance would be
    automatically generated.
•   Assumptions made during the Action Programme and in extrapolating data to the
    EU level can then be standardised for use in ex ante impact assessment, though the
    SCM methodology for ex ante impact assessment (like occurs in the UK) will
    inevitably differ from that applied in the ex post measurement exercise. In ex ante
    measurement, as a matter of fact, one-off costs should always be taken into account,
    and ‘business as usual’ costs should never be considered.
•   As regards accuracy and the level of detail, we suggest – based on national
    experiences analysed – that the Commission identifies ‘IOs’ as the basic unit of its
    measurement, though subdividing IOs into DRs only in exceptional circumstance.
    Further subdivisions would add little accuracy, but a lot of complexity.
    Furthermore, the typical ‘Pareto distribution’ of administrative burdens suggests
    that in most cases, for IOs that are not particularly costly direct assessment of
    administrative cost is more efficient and effective than use of more costly and time-
    consuming data collection tools.
•   In operational terms, we suggest that the Commission awards priority to the 10
    most burdensome areas in Categories A and B, submitting them to consultation in
    the October 2006-February 2007 timeframe. These areas represent at least 70% of
    burdens generated by EU legislation. The measurement of remaining areas and of
    burdens faced by citizens and public administrations should be undertaken at a
    later stage or, in any case, separately.
                                        – 144 –



•   As the EU impact assessment system is becoming more established and pervasive
    in the Commission Strategic Planning and Programming Cycle, we suggest that the
    Commission opts for keeping a ‘live’ baseline. This requires some refinement in the
    current IA procedure: in particular, when performing ex ante impact assessments,
    DGs, the Parliament and the Council should ensure that the IOs corresponding to
    new proposals are clearly identified, and that IOs that are repealed are also listed.
•   Targets can be set for priority areas. This does not preclude the potential for
    announcing an overall ‘political’ target, as was done in some of the analysed
    countries. After the measurement, targets can be adjusted for each DG.
•   When setting targets, it is essential that other EU institutions commit to cooperate
    with the Commission in achieving the targets set. Otherwise, simply setting targets
    for each DG would prove impossible. Such a coordination between the
    Commission, the Council and the Parliament should be sought through an Inter-
    Institutional Agreement.
•   Institutional communication between the Commission an member states can be
    achieved by replicating the fruitful collaboration with the International SCM
    Network that made this Final Report possible. As the participation of EU member
    states to the Network is increasing, this would automatically ensure that the
    Commission avails of a growing number of counterparts and data sources when
    undertaking the measurement. Moreover, the use of web-based tools such as
    SINAPSE would prove essential.

								
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